Minimum wage bill would kill black, Latino jobs

April 24, 2012

By John Seiler

It seems that no bad idea goes unpassed in the California Legislature. Yesterday the Assembly Labor and Employment Committee passed AB 1439, by Assemblyman Luis Alejo, D-Watsonville. It would increase the minimum wage in California by the rate of inflation, while preventing decreases during times of deflation. Currently, California’s minimum wage is $8 an hour, 75 cents above the the federal minimum of $7.25.

But copious research shows that minimum wage laws destroy the jobs of just those workers Alejo and others want to help: black and Latino minorities.

Black economist Walter Williams has pointed out how a high minimum wage “cuts off the bottom rung of the ladder” of employment. Few people stay for long at the minimum wage. Once they prove competence and show up for work on time, employers usually raise their wages above the minimum, or risk losing such good workers to other employers.

What the minimum wage does is make low-level jobs prohibitively expensive for employers. The employers then just don’t hire people, farm out the work to India or China, move the whole company to another state or country or go out of business. Alejo does not propose putting a shotgun to employers’ heads and forcing them to hire people at his new minimum wage.

Williams wrote a classic study on this in 1977, “Government Sanctioned Restraints that Reduce Economic Opportunity for Minorities.”

He pointed out, for example, that if someone’s labor value is only at the minimum wage, but not higher, then raising the minimum wage means that person will lose his job.

Youth and minorities

Williams wrote that two groups of people especially are affected by the minimum wage: youngsters, who have little work experience; and minorities, who may have suffered discrimination, or went to bad schools. And most affected of all are minority youngsters. “These workers are not only made unemployable by the minimum wage, but their opportunity to upgrade their skills through on-the-job training also are severely limited,” he wrote.

He noted that youth employment always is higher than general unemployment, even during prosperous times. And black youth unemployment has been especially bad; it “has ranged from two to three times the unemployment for white youths.” Black youth unemployment, he reported in 1977, in some areas is as high as 50 percent.

That’s one dismal statistic that hasn’t changed in 35 years. The Bureau of Labor Statistics reported that today black youth unemployment remains at 50 percent.

But it wasn’t always that way. Williams pointed out that in 1948 black youth unemployment actually was 9.4 percent —  less than the 10.2 percent of white youth. That situation held until the late 1950s.

So, what happened in the late 1950s to cause the crash in jobs for blacks, especially black youngsters?  Was it racism? It can’t be that, Williams wrote, because racism was a lot stronger in 1948, when Jim Crow laws segregated blacks in the South; and in the North, tacit discrimination was rampant. The great Jackie Robinson debuted as the first black player in Major League Baseball only in 1947. Race relations improved in the 1950s.

The real culprit: the minimum wage was hiked to freeze out black workers, in the late 1950s going up 33 percent, to $1 an hour.

As Williams described it, “The minimum wage law gives firms effective economic incentive to to hire only the most productive employees which means that firms are less willing to hire and/or train the least productive which includes teenagers and particularly minority teenagers. But holding all else constant, such as worker productivity, such a wage law gives firms the incentive to indulge in whatever preferences that they may hold.”

For example, a company might be able to hire 1) a white youth who went to a decent public school at $9 an hour; or 2) a Latino youth who went to a wretched public school, but can be trained, at $8 per hour, the current minimum wage in California. So the company saves some money by hiring the Latino, puts some effort into training, and gets a good employee. But if the minimum wage is hiked to $9 an hour (or higher) by Alejo’s AB 1439, then the Latino youth never will be hired. The white youth will be hired instead because he went to a decent school and doesn’t require training.

That’s how insidious minimum-wage laws are in destroying jobs. As Williams wrote, it allows a prejudiced employer to “discriminate at zero cost.”

Paying for discrimination

But if there’s no minimum wage, then what about discrimination? What if an employer doesn’t like Latinos or blacks? Then it’s going to cost him. With no minimum wage, he’ll have to pay the higher wage to the white worker, instead of the lower wage to the minority worker. He’ll lose money.

By contrast, his competitor in the same business who isn’t prejudiced, is happy to gain a competitive edge by hiring, and training, minority youth. That competitive edge might be just what it takes for him to survive in the dog-eat-dog world of competitive business, while his prejudiced competitor goes broke.

Unfair?

Is it unfair to the minority youth who’s paid less? Yes. As President John F. Kennedy said, “Life is unfair.” But what’s worse: a job that pays less but delivers crucial job experience and a slot on a resume — or having no job at all because the minimum wage prevented one from being hired? Obviously, working is better. And as mentioned earlier, a first, low-paying job rarely is the last job one will hold.

Williams wrote that it’s “offensive to the sensibilities of many people” that some workers are paid less just because of their race or color. But he then noted that in South Africa, which still suffered under the full force of apartheid in 1977, white racist unions supported minimum wage laws and “equal pay for equal work” laws for blacks precisely to freeze out the black workers.

And Williams pointed out that it has been unions in America that also have backed minimum-wage laws to keep minorities from competing with white workers. That hasn’t changed. AB 1439 is supported by the American Federation of State, County and Municipal Employees; the Laborers’ International Union of North America, Locals 777 & 792; and the National Association of Social Workers, California Chapter.

Back in 1977, Williams warned that increasing the minimum wage, which happened in 1978, would keep high unemployment for minority youth, discourage such youth from pernanently entering the work force by cutting off that “bottom rung” of the crucial employment ladder, create more dependency on government programs and “some of these youth will turn to various forms of anti-social behavior.”

Shortly after the minimum wage was hiked, despite Williams’ warning, the crack epidemic hit America’s inner-city youth. And even today, as noted earlier, black youth unemployment remains at 50 percent.

If AB 1439 is passed, it could raise that number even higher.