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Minimum Wage Is a Barrier to Employment of Teenagers, Blacks, and Hispanics
Raymond Richman, 6/18/2014

Before 1938, all minimum wage laws were declared unconstitutional by the U.S. Supreme Court. Pres. Franklin Roosevelt signed the Fair Labor Standards Act in that year which, inter alia, established a minimum wage of $13 per week. The Roosevelt packed Supreme Court upheld its constitutionality under the Constitution’s commerce clause. Arguably the ruling enabled the federal government to legislate without constitutional restriction on its power, except for the first ten amendments of the Constitution. The federal government established a minimum was of $7.25 in 2007 when we were just entering he Great Recession, which no doubt helped deepen the recession and slow the recovery. There is little doubt that the minimum wage causes unemployment; a poll showed that 70% of economists believe that the law affects mostly unskilled labor, those without previous work experience. The principal group are teenagers and the statistics bear that out, with particular effect on blacks and Hispanics as the following table shows:

Source: US Bureau of Labor Statistics

The rates applicable to black teenagers are scandalous. Teenage black males had an unemployment rate of 42.8%, twice the rate of teenage white males. Black females had a rate of 27.5%. Hispanic teenagers, men and women, had rates of over 24 percent. One could argue that the minimum wage is racist!

Twenty-two states and D.C. have higher minimum rates than the Federal government. These include the following states will substantial black or Hispanic populations: California $8, Florida $7.93, Illinois $8.25, Massachusetts $8, New Jersey $8.25, and New York $8.

How many workers are employed at the minimum wage? Surprisingly, only 1.5 million. Ninety percent of those employed in Food preparation, including restaurants, had wages over $7.97 in May, 2013, in Farming, Fishing, and Forestry over $8.83, in Personal Care $$9.82, and in Building and Grounds Maintenance $9.75. The industries, employing many millions of workers, which are reputed to pay low wages have annual average and median wages greatly exceeding the minimum wage. Obviously, workers employed at the minimum wage are seldom paid the minimum wage for more than a few months. The following tables are further evidence:

Average Hourly and Weekly Earnings, May, 2014

Industry                                   Hourly                  Weekly                 Est. Annual                                                           Earnings               Earnings               Earnings

Total Private                           $24.32                  $839.04                $43,000

Manufacturing                           24.73                  1,016.40                 52,000

Retail Trade                               16.87                    526.34                  27,000

Leisure and Hospitality             13.73                    359.73                  18,500

Source: US Bureau of Labor Statistics

Median Wage and Annual Wage in Selected Industries, May, 2013

Industry                                             Hourly                  Annual

                                                           Wage                     Wage

Food preparation                              $ 9.35                   $ 21,110

Farming, fishing, and forestry              9.32                      24,330

Personal care                                     10.04                      23,530

Building and grounds maintenance   11.04                      26,010

Source: US Bureau of Labor Statistics

A minimum wage of $5 is an annual wage of more than $10,000. If employers cannot expect $10,000 of value-added, they will not hire. When the wage is $5, the employment of a teenager adds $10,000 per year to family income, tax free. Suppose reducing the minimum wage from $7.25 to $5/hour, 50% of the unemployed teenagers would have been employed, a not unreasonable assumption. Since some 5,785,000 unemployed teenagers were employed during the 1^st quarter of 2014. 2,891,000 would have been employed and their annual earnings would have amounted to $28.9 billion dollars. If so, the national minimum wage of over $7.25 per hour has cost teen-agers nearly $29 billion and raising it to $10.00, will cost them even more.

How many would be employed if there were no minimum wage at all? Nearly all of those willing and able to work. Once employed and having a good work experience, they would find employers bidding for them and bidding up their wages. The average wage in the leisure and hospitality sector, the lowest paid group reported by the U.S. Bureau of Labor Statistics, in May, 2014 was $13.73 per hour, in Retail Trade it was $16.96, while the average worker in the private sector including the highly skilled, received $24.38 per hour.

Getting a first job is very important to an individual’s skill development. If one has to pay an unskilled worker an amount of money that exceeds the expected skill he is expected to acquire by on-the-job training in a reasonable time on the job, employers will be very reluctant to experiment and to employ additional workers whereas if wages are lower, employers will be more willing to take a chance on hiring. Unfortunately teenagers do not know why they are unable to find a job and are easy prey to those who argue that it is the fault of the capitalist system. No it is simply another instance of government price controls which always results in shortages when it sets a maximum pice, or, as in this case a minimum wage one has to pay for labor, that limits the demand. Governments that establish a minimum wage should be forced to hire everyone willing to work for that wage.

Some other effects of the minimum wage are worth noting. Some employers can more easily pass on increased wage costs to consumers in the form of higher prices. Employers with a greater degree of monopoly power are more likely to be able to pass the increased cost of wages to their customers, whereas employers in highly competitive industries will be less able to pass the burden of increased costs to their customers.

If all employers in highly competitive industries have to pay the increased cost of a   minimum wage, their customers will have to bear the burden in the form of increased prices. Fast food and less-expensive restaurants will lose customers as some of their customers will eat out less frequently. They will become less profitable and some may even close. Expensive restaurants and hotels will be affected little by a small rise in costs of relatively unskilled employees, whose pay is a small proportion of the price of their final product.

In our opinion, the minimum wage is another example of government interfering in the economy to the detriment of general economic well-being. Unfortunately, in the case of the minimum wage, its burden falls almost entirely on teenagers and the unskilled and it is especially hard on black teenagers and the black unskilled as the data show.