This commentary originally appeared in the Tyler Morning Telegraph on July 30, 2015.
Milton Friedman, Nobel Prize recipient in economics, would have turned 103 today had he not passed in 2006.
His works on school choice, reducing the Federal Reserve to a computer program and the benefits of free markets have changed the way many view the world, including me.
In his best seller “Free to Choose,” co-authored with his wife Rose, one topic he adamantly opposed was government-mandated minimum wages that “are defended as a way to help low-income people”…but instead “hurt low-income people.”
Friedman wrote in a 1966 Newsweek article, “Many well-meaning people favor legal minimum-wage rates in the mistaken belief that they help the poor. These people confuse wage rates with wage income.”
Having a job at any wage rate is better than being unemployed without wage income. And most earning the minimum wage supplement family income, such as teenagers and the elderly.
Friedman continues, “Some workers who already receive wages well above the legal minimum will benefit — because they will face less competition from the unskilled. That is why many unions are strong supporters of higher minimum-wage rates.”
There’s now a discussion to raise it to $10.10 or higher to provide a “living wage.”
Underlying the farce that a higher minimum wage improves someone’s well-being is the Law of Demand. Too many forget or ignore that a minimum wage artificially raises the price of low-skilled labor reducing employment.
Many of these jobs are mechanized from the higher cost such as bank tellers who have been replaced by ATMs. Burger-making robots built by Momentum Machines may soon replace fast food workers in response to their demands for a “living wage.”
Research by Neumark, Salas and Wascher and another by Meer and West find that low-skilled workers, particularly teenagers, have the most job losses from the minimum wage. This is crushing to those seeking on-the-job training and higher lifetime earnings.
Despite overwhelming evidence that low-skilled, low-paid workers suffer under a minimum wage, Congress has increased the federal wage 22 times since its inception in 1938. The last increase was from $5.15 in July 2007 to $7.25 in July 2009.
Consider the 16 to 19 year old age group earning at or below the minimum wage in 2006 and 2010 surrounding the last increase.
Teenagers in this wage category increased by about 575,000 though their share of the 4.4 million total minimum wage earners nationwide declined by 2.2 percentage points to 22.8 percent in 2010. Their labor force participation rate declined by 8.6 percentage points to 35 percent, unemployment rate increased by 69 percent to 25.9 percent, and employment-population ratio declined by 11.1 percentage points to 25.9 percent.
These were all the worst or near the worst statistics since record-keeping began in the late 1940s. Black teenagers fared even worse.
Though the Great Recession can also partially explain this burden on teenagers, Clemens and Wither find that the minimum wage increase explains at least 14 percent of the drop in their employment-population ratio.
Clearly, the minimum wage mandates teenagers and the least skilled to unemployment.
In “Free to Choose,” Friedman writes, “The minimum wage law requires employers to discriminate against persons with low skills.” Banning a wage below the artificially determined level pushes many teenagers into criminal activity and other costly endeavors to earn a living.
States have different costs of living. California is 50 percent more expensive than Texas, according to the private firm C2ER. Therefore, a one-size-fits-all federal wage doesn’t work.
Friedman said it best, “The rise in the legal minimum-wage rate is a monument to the power of superficial thinking.”
To honor Friedman and improve the well-being of Texans and all Americans, let’s end the federal minimum wage and instead champion his ideas of school choice and free markets.
Vance Ginn, Ph.D., is an Economist in the Center for Fiscal Policy at the Texas Public Policy Foundation, a nonprofit, free-market research institute based in Austin. He may be reached at [email protected]