Thursday, September 24, 2015

The Minimum Wage Is a Vicious Policy

PO Box 130
West Shokan, NY 12494
September 24, 2015

The Honorable Kevin Cahill
One Albany Avenue
Kingston, NY 12401

Dear Mr. Cahill:

In the course of a project that I have pursued over the past few months, I have reviewed the contents of 540 academic articles in the three leading industrial relations journals: Industrial and Labor Relations Review, Industrial Relations: A Journal of Economy and Society, and Journal of Labor Research.  The field of industrial relations was established as a left-wing response to mainstream economics, and its support for the minimum wage was one of the key reasons.

Nevertheless, the majority of the studies that appeared between 2008 and 2013 found that the minimum wage is associated with increased unemployment.  That is not surprising because the majority of mainstream economists have long agreed that the minimum wage causes unemployment.   The reason is that an enforced wage floor above the market rate increases the supply of labor but reduces demand.  The reduction in demand comes about because employers leave the state; higher wages lead to higher prices and customers leave the state; moreover, employers find new production methods that reduce demand.  The reduction in demand forces unskilled labor into permanent unemployment and dependency.

Until 2014 Germany did not have a federal minimum wage.  Its youth unemployment rate has been half that of Great Britain.   Britain, which has had a lower minimum wage than France, has had a slightly lower youth unemployment rate than France.  France, with its suburbs or Banlieue overflowing with unemployed minority youth who live lives of desperation and violence, has the one of the highest minimum wages.
Until a few years ago the US minimum wage was low enough that modest increases had limited effect on unemployment. Nevertheless, Walter Wessels, an economist at North Carolina State University, realized that the minimum wage has led to a decline in training and the end of the great American tradition of working one’s way up from the bottom. That has occurred because in order to compensate for the minimum wage without layoffs, employers reduced what Wessels has called “fringe benefits”: training investments and other benefits.  They spend less on low-wage employees and they replace them with capital investment.  The result has been increasing income inequality because minimum wage employees are locked at the bottom.

At a meeting of the Labor and Employment Relations Association this past May, I asked a panel that was held concerning the minimum wage, including two of the zealots advocating the minimum wage here in New York, what the effect on business startups is.  The countries with high minimum wages are not famous for dynamic economies, innovation, or progress.  No one on the panel knew what the effects on innovation or startups will be.  Andrew Cuomo, the HUD chief who required that banks make subprime loans, may not be the best one to ask. 

The claim that the minimum wage is benevolent, progressive, liberal, altruistic, generous, or kind is false.   The minimum wage forces a section of the public into permanent unemployment and dependency.   The workers who cannot earn the $15 per hour that the minimum wage will require  are among the most vulnerable in society.  Compelling a large share of them to remain permanently unemployed and dependent on welfare because that’s what the SEIU and social democrats whose ideas have driven New York’s economy into the ground for the past century want is illiberal, reactionary, and vicious.   


Mitchell Langbert