Discussion: (17 comments)
Comments are closed.
A public policy blog from AEI
View related content: Carpe Diem
I’ve featured a lot of material lately on CD from Thomas Sowell, and will continue today with another gem of economic wisdom from Sowell, taken from his 2007 book Basic Economics: A Common Sense Guide to the Economy from the chapter “Controlled Labor Markets” in the section titled “Differential Impact“:
In country after country around the world, those whose employment prospects are reduced most by minimum wage laws are those who are younger, less experienced or less skilled…..
Another group disproportionately affected by minimum wage laws are members of unpopular racial or ethnic minority groups. Indeed, minimum wage laws were once advocated explicitly because of the likelihood that such laws would reduce or eliminate the competition of particular minorities, whether they were Japanese in Canada during the 1920s or blacks in the United States and South Africa during the same era. Such expressions of overt racial discrimination were both legal and socially accepted in all three countries at that time.
Again, it is necessary to note how price is a factor even in racial discrimination. That is, surplus labor resulting from minimum wage laws makes it cheaper to discriminate against minority workers than it would be in a free market, where there is no chronic excess supply of labor. Passing up qualified minority workers in a free market means having to hire more other workers to take the jobs they were denied, and that in turn usually means either having to raise the pay to attract the additional workers or lower the job qualifications at the existing pay level – both of which amount to the same thing economically, higher labor costs for getting a given amount of work done.
The history of black workers in the United States illustrates the point. From the late nineteenth-century on through the middle of the twentieth century, the labor force participation rate of American blacks was slightly higher than that of American whites. In other words, blacks were just as employable as the wages they received as whites were at their very different wages. The minimum wage law changed that. Before federal minimum wage laws were instituted in the 1930s, the black unemployment rate was slightly lower than the white unemployment rate in 1930. But then followed the Davis-Bacon Act of 1931, the National Industrial Recovery Act (NIRA) of 1933 and the Fair Labor Standards Act (FLSA) of 1938 – all of which imposed government-mandated minimum wages, either on a particular sector or more broadly.
The National Labor Relations Act of 1935, which promoted unionization, also tended to price black workers out of jobs, in addition to union rules that kept blacks from jobs by barring them from union membership. The NIRA raised wages in the Southern textile industry by 70 percent in just five months and its impact nationwide was estimated to have cost blacks half a million jobs. While this Act was later declared unconstitutional by the Supreme Court, the FLSA was upheld by the High Court and became the major force establishing a national minimum wage.
By 1954, black unemployment rates were double those of whites and have continued to be at that level or higher. Those particularly hard hit by the resulting unemployment have been black teenage males.
Unemployment among 16 and 17-year-old black males was no higher than among white males of the same age in 1948. It was only after a series of minimum wage escalations began that black male teenage unemployment rates not only skyrocketed but became more than double the unemployment rates among white male teenagers.
MP: For the first four months of 2016, the average white male teenage jobless rate was 14.8% compared to the average black male teenage jobless rate of 26.2%.
Update: Chart has been added at the top of the post, showing annual averages for teenage jobless rates for white vs. black males. Over the 45-year period going back to 1972, the average teenage jobless rate for black males (36.6%) was more than twice the average jobless rate for white male teens (16.8%).
Comments are closed.
1789 Massachusetts Avenue, NW, Washington, DC 20036
© 2018 American Enterprise Institute