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Good intentions, when guided by error
and ignorance, may have undesirable consequences. There is no better
example than minimum wage legislation. It means to raise the wages and
improve the living conditions of poor workers but actually condemns many to
chronic unemployment. It forcefully raises the costs of unskilled and
inexperienced labor and thereby lifts it right
out of the labor market. Yet, many politicians
who neither own nor manage a business and do not employ such labor never tire of lamenting and deploring low wages
and promising to raise the wage minimum by law and regulation.
The official Federal minimum presently
stands at $5.15 an hour; the actual minimum is much higher. No employer can
overlook the mandated fringe benefits which he is forced to pay above the
minimum. There are employer Social Security taxes, unemployment and
workers' compensation levies, and paid holidays. In some industries the
workers' compensation levy alone may amount to more than one-half of the
wages paid. And if the employer should carry his workers' health insurance
costs, employment costs may be double the minimum rate. If eager members of
Congress should be successful in raising the minimum by two or three
dollars an hour, many young people may be condemned to permanent
unemployment.
The rate of unemployment tends to be
directly proportional to the excess of labor
costs over productivity. In many European countries with official minimum
wages of more than $10 an hour, the rate of unemployment is measured in
double-digit rates although governments spend massive amounts on make-work
projects. Some victims readily submit to their fate and endure a life of
idleness and bare subsistence. Many learn to labor
in black markets where goods are produced and services are rendered in
violation of minimum wage edicts and other regulations and controls. But
most victims are young people with little training and know-how who tend to
react angrily and violently. Their rate of unemployment actually amounts to
multiples of the official rate. And if society should be divided
ethnically, youth training and productivity may be lower yet and its rate
of unemployment may approach 100 percent. Such a labor
situation is laden with anger and fury which not only breeds high crime
rates but also, at any time, may turn to violence by mobs of unemployed
youth. The recent riots of French youth clearly resembled the riots of
unemployed Americans in Watts in 1965, in San Francisco
in 1966, Detroit and Baltimore
in 1967, Chicago and Cleveland
in 1968, and in Los Angeles in 1992.
The situation is most dangerous and
explosive in cities and states with state minimums even higher than those
set by the Federal government. Minimum wage legislation had its beginning
in states long before there was a New Deal that made the Federal government
the primary labor legislator and regulator. State
governments continue to lead the way in raising labor
costs; state rates of unemployment tend to indicate the political strength
of the minimum wage movement.
Few economists have the courage to
point to labor legislation and regulation as the
very cause of mass unemployment. A few who muster the courage may emphasize
the infinite demand for labor but are ever
mindful that its costs set limits to the demand. Few
employers, if any, knowingly buy labor that costs
more than it produces, just as few workers are likely to purchase consumer
goods which, in their judgment, cost more than they are worth. Yet,
economists who dare to point to labor legislation
and regulation as important causes of mass unemployment are criticized,
denounced, condemned, and vilified as callous and ruthless agents and
spokesmen of greedy employers.
Politicians may draw applause and win
an election with numerous wage promises and other assurances no matter how
unrealistic they may be. Some politicians undoubtedly are Machiavellians
who are fully aware of the evil consequences of such policies but continue
to promise them in the hope of garnering the votes. They may point to new
employment programs such as public works, neighborhood
youth corps, job corps, and other benefit corps. Some politicians may be
candid and sincere but cannot be reached with economic reasoning. They are
utterly unaware of inexorable economic principles but very eloquent in all
matters of politics and law. With their eyes glued on the wants and needs
of workers and their families subsisting on minimum wages, they place their
trust in economic laws and regulations and in the power of the police to
enforce them.
To alleviate minimum-wage unemployment
is to restore freedom in the labor market; it
would permit the cost of labor to readjust to labor productivity and offer employment to every young
man and woman willing and ready to work. A free labor
market would welcome young people, which not only would exhort and restore
the spirit of work but also improve labor skill
and know-how. The labor productivity of American
youth soon would rise and exceed the ominous minimum levels that presently
condemn millions to idleness. Freedom has a thousand charms even in the labor market.
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