The Unintended Consequences of "Living" Minimum Wages
The presumption behind minimum wages is simple: business owners will refuse to pay “living wages” to unskilled workers unless compelled to do so. Of course, if you buy into that theory, you also must agree that every worker is entitled to a “living wage.” The problem with these presumptions is that neither is true. Unless compelled otherwise, a business owner will pay an employee whatever it takes to retain that employee in a free market. The jobs requiring the least skill attract the broadest number of potential workers, increasing competition for the position, hence pressuring wages. And no job guarantees a “living wage.” In fact, the term “living wage” is vague which might make it a useful political term but otherwise it is of little practical use. It is yet another political conflation of entitlement, charity and earnings that can be used to bludgeon free market conservatives.
However, the minimum wage and minimum wage laws do have their unintended consequences. While most Americans view minimum wages as barely worthy of effort, immigrants from many countries see these wages as a coveted opportunity to break free of crushing poverty. Unskilled workers from many countries, especially Central and South America, risk everything to flock here illegally to take minimum wage positions. Many of the jobs taken by illegal immigrants were once the entry level jobs taken by unskilled Americans, many of them teenagers and part-time workers. All of us who’ve raised children understand any reluctance to hire teens. And we can also appreciate the difficulty associated with juggling a schedule of part-time workers. So for those jobs requiring little skill and interaction, it is no wonder that employers prefer highly motivated immigrants willing to work full-time.
However, within the overall economy, immigrant labor is costly. Incomes for teens and part-time workers are generally supplemental; their needs for housing, food, transportation, healthcare are primarily the responsibility of other family members. Illegal immigrants making minimum wages, however, and their families, need other services – education, food stamps, housing assistance, unemployment compensation, healthcare assistance. These things are not affordable for one working at minimum wages so they must be provided as government assistance. The “living wage” argument for minimum wages has thus become a self-justifying argument.
Though it is politically incorrect to do so, it is important to point out that the immigrant community is very, very good at identifying and utilizing benefits programs available to them. The rise in the rate of children born to unwed mothers, especially in the Latino community, can in great part be attributable to the availability of benefits for unwed mothers. Public assistance in housing, food assistance, health care and general welfare may be jeopardized if a husband or father is acknowledged in the US. So enterprising immigrant “husbands” and “wives” remain technically unattached, at least as far as the government is concerned, so that their families may qualify for additional benefits.
On the other hand, it has become increasingly difficult for American young adults and teens to find gainful part or full-time employment. Unemployment rates among the young remain staggeringly high. And while the lessons to be learned in entry level, low-skill, part-time work may be difficult and though teens may not be the best of workers, this kind of training is no less essential in teaching young Americans the value of being presentable, reliable, honest, on time and industrious in exchange for wages. This is the most basic American contract, the key to independence. I’m afraid that many children today will never experience that humbling series of first jobs. Many may never appreciate the fact that washing dishes or working a flat grill is hard, worthy work but not something that necessarily makes for a comfortable middle class life.
To conclude, minimum wage laws have displaced traditional entry level workers with immigrant workers, many of whom are in the US illegally. These inflated wages provide the incentive for illegal workers to come here, however even “living” minimum wages are insufficient to support a family. Hence, immigrant workers must take full advantage of government programs for the “working poor;” healthcare, housing, food, childcare and other assistance programs. This has led to an insidious increase in the number of children born to unwed mothers, especially in the Latino community, where acknowledgement of a “spouse” in the US might jeopardize benefits. In the meantime, American teens and other young adults are crowded out of entry level positions and are deprived of the important lessons associated with such employment: the value of all hard work and the need to develop drive, good work habits and real marketable skills if one is become a self-sufficient, successful citizen.
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Jan '12
Re: The Unintended Consequences of "Living" Minimum Wages
It amazes me how much worse this has gotten in the past decade. I didn't have too much trouble finding my first part-time job as a teenager almost ten years ago. Meanwhile, my sister turned 16 last year and hasn't been able to find anything. So many places flat out refuse to hire teens for jobs my friends and I did a decade or more ago.
Edited on February 6, 2012 at 9:12pmAug '10
Re: The Unintended Consequences of "Living" Minimum Wages
Makes too much sense. Take care of our own children and our fellow citizens first ? Too much of this could lead to a lower unemployment picture. Combine with increased tax revenues , decreases in welfare and unemployment checks , and less need for administering the latter and you have a real problem - shrinking government. Pretty dangerous thinking here, you're not suggesting that we produce things rather than move other people's money to wherever it buys votes ?
Aug '11
Re: The Unintended Consequences of "Living" Minimum Wages
I wrote this in response to Mitt Romney's recent comments about the minimum wage. I'm starting to think that Mitt really doesn't get it; that he is really not a conservative at all. How can a man with his intellect miss the deeper conservative argument so many times, and still expect that we will accept that he is indeed a conservative? Once again, I find myself hoping for a Santorum surge so that we can take this to the convention and draft someone to face Obama who does not have to be chastised into a conservative argument.
Apr '11
Re: The Unintended Consequences of "Living" Minimum Wages
A minimum wage is nice, of course, but we have other economic rights as well (according to FDR).
Among these are:
The right to a useful and remunerative job in the industries or shops or farms or mines of the nation;
The right to earn enough to provide adequate food and clothing and recreation;
The right of every farmer to raise and sell his products at a return which will give him and his family a decent living;
The right of every businessman, large and small, to trade in an atmosphere of freedom from unfair competition and domination by monopolies at home or abroad;
The right of every family to a decent home;
The right to adequate medical care and the opportunity to achieve and enjoy good health;
The right to adequate protection from the economic fears of old age, sickness, accident, and unemployment;
The right to a good education.
Aug '11
Re: The Unintended Consequences of "Living" Minimum Wages
Peter Meza:
I love the adjectives - useful, remunerative, adequate, decent and good. Who can argue with that? Oh, they are all subjective? Of course, we need to leave to the politicians the opportunity to perpetually further the achievement of perfect society; eg. a liberal's work is never done.
Jan '11
Re: The Unintended Consequences of "Living" Minimum Wages
Good summary, but I'm left with some questions.
who is the determiner of what constitutes a "living wage?"
What parameters are included in a living wage (objective, that is)?
Is a living wage related in any way to effort and productivity?
Jan '11
Re: The Unintended Consequences of "Living" Minimum Wages
Peter Meza: A minimum wage is nice, of course, but we have other economic rights as well (according to FDR).
Among these are:
The right to a useful and remunerative job in the industries or shops or farms or mines of the nation;
The right to earn enough to provide adequate food and clothing and recreation;
The right of every farmer to raise and sell his products at a return which will give him and his family a decent living;
The right of every businessman, large and small, to trade in an atmosphere of freedom from unfair competition and domination by monopolies at home or abroad;
The right of every family to a decent home;
The right to adequate medical care and the opportunity to achieve and enjoy good health;
The right to adequate protection from the economic fears of old age, sickness, accident, and unemployment;
The right to a good education. · 3 hours ago
Does effort on the recipient's part have anything to do with these rights?
Oct '10
Re: The Unintended Consequences of "Living" Minimum Wages
The problem with a "living wage" is that it ignores the real side of the economy. If, for example, local property owners in a community have colluded to get the local government to restrict new housing starts (and thereby raise property values), no matter how high the local government hikes the minimum wage, poor people will still be unable to afford decent housing.
In general, "living wage" policies will create inflation and some unemployment, but otherwise won't have any real effect.
Oct '10
Re: The Unintended Consequences of "Living" Minimum Wages
Douglas Kimball
I wrote this in response to Mitt Romney's recent comments about the minimum wage. I'm starting to think that Mitt really doesn't get it; that he is really not a conservative at all. How can a man with his intellect miss the deeper conservative argument so many times, and still expect that we will accept that he is indeed a conservative? Once again, I find myself hoping for a Santorum surge so that we can take this to the convention and draft someone to face Obama who does not have to be chastised into a conservative argument. · 4 hours ago
What did Mitt Romney say?
Apr '11
Re: The Unintended Consequences of "Living" Minimum Wages
Anon:who is the determiner of what constitutes a "living wage?"
What parameters are included in a living wage (objective, that is)?
Is a living wage related in any way to effort and productivity? · 17 minutes ago
Answer to the first question is Big Labor as union wages are determined as multiples of a minimum wage. This answer negates any need to try and answer the second question. The third question is asking for an opinion and therefore I 'm unwilling to answer ans the questioner would have to make up their own mind.
Oct '10
Re: The Unintended Consequences of "Living" Minimum Wages
I just read that Romney came out in favor of indexing the minimum wage. That's insane. It would make our economy more inflationary and less flexible, and risk a wage-price spiral. Wage indexation is a terrible idea, especially since wages in the U.S. still need to fall a bit relative to our trading partners. If we interrupt that process, we'd risk a financial crisis much, much worse than what happened in 2008.
Inflation is how wages adjust in modern economies. Removing that mechanism tends to create a lot of unemployment (as evidenced in Spain and other indexed countries), as relative price adjustments between sectors no longer happen (the market ceases to function, in other words).
Oct '10
Re: The Unintended Consequences of "Living" Minimum Wages
Boy, you're starting to think that? I admire your graciousness-and patience.
You're right on about this. Prof. Walter Williams has suggested eliminating the minimum wage, for minors at least, since they probably cannot produce at the level of their pay. The GOP should take this policy up as long as there is someone who can make the argument without getting into the kind of controversy that engrossed Newt.
Also, I wonder how much of the problem is due to agriculture subsidies and tariffs. We can either produce a good here or import it, and I think for most Americans the opportunity cost of importing is much less. If we imported more of these ag products it would help with the illegal immigration issue as well as bring cheaper products to market, which helps everyone.
May '10
Re: The Unintended Consequences of "Living" Minimum Wages
The question is not whether minimum wages are bad, or indexing a problem, etc. It is what battles you choose to fight- you can't fight them all. Teenagers aren't voting, so you pitch the policy to the poor adults.
The data show that minimum wage- indeed, a lousy law that is more sacrosanct than other worthless money-wasting sacred cows like Head Start- ends up being almost economically irrelevant, except symbolically. Virtually no full-time job is truly pegged to the minimum wage. Those who suffer are virtually all kids.
If you had to pick 10 Federal economic programs to kill or fix, what would they be? I don't know a conservative economist who would put minimum wage in the top 10. Instead, you'd reform or kill 3 entitlements, you'd kill CFPB, you'd change tax deductions, you'd change Fed governance, you'd change bank reserve limits, kill Fannie & Freddie (a legit twofer), you'd stop the 99 week unemployment extension, you'd ratify CAFTA, etc .
And all our people can do is fuss about less important stuff, apparently to boost favored hopeless candidates. Does anyone want to make a wager about Santorum?
May '11
Re: The Unintended Consequences of "Living" Minimum Wages
There is another unintended consequence of higher minimum wages.
Today, most retail operators cap the number of hours an employee can work at 30. By doing this they totally avoid overtime which gets really expensive and also avoids many of the benefits programs "full time" employees would demand. There is an extra burden on the payroll and accounting departments but they have automated time clock systems and good computer programs to handle it.
Usually, these employers "rotate" shifts weekly so no one gets "stuck" with a bad shift for long periods. The result is it is very difficult to get a second job to make ends meet because of scheduling issues.
So higher minimum wages means fewer hours for those that do work.
May '10
Re: The Unintended Consequences of "Living" Minimum Wages
Peteer Meza: From whence come those "rights"? God gives us the rights to life, liberty and the pursuit of happiness. But even God does not give us the right to happiness. And FDR? FDR can't give you the right to much of anything. He's dead.
No. Those things you cite are aspirations, not rights. Calling them rights doesn't make them so. And the only way to secure those things is by working for them.
May '10
Re: The Unintended Consequences of "Living" Minimum Wages
To really understand the Minimum Wage, you must understand how it came about. It was, in essence, a union-supported means of eliminating competition by Black, non-union workers. A racist tool. The union couldn't control who would enter the labor market. But they could control who could be a member of the union. And if government projects were forced to pay union scale, then the White union employees couldn't be undercut by the Black, non-union workers.
The same effect continues today with the Minimum Wage except that, with unions now integrated, as noted above, the people who get cut out now are the young, inexperienced teens who need first jobs to learn the basic disciplines necessary to a successful career.
Feb '12
Re: The Unintended Consequences of "Living" Minimum Wages
I wonder how liberals define a "living wage"? Does it just cover the basic costs of living? Living where? In what kind of accommodations? What kind of food is provided for? How about transportation? Does it cover that, and if so, what kind?
Personally speaking my living wage must cover the the cost and maintenance for a house in Bel Air, foie gras delivered to my bedside, and weekly hand-waxing of my Bentley. You get that covered and we can talk about that dish washing job.
Apr '11
Re: The Unintended Consequences of "Living" Minimum Wages
Tom Lindholtz: Peteer Meza: From whence come those "rights"? God gives us the rights to life, liberty and the pursuit of happiness. But even God does not give us the right to happiness. And FDR? FDR can't give you the right to much of anything. He's dead.
No. Those things you cite are aspirations, not rights. Calling them rights doesn't make them so. And the only way to secure those things is by working for them. · 23 minutes ago
I was being waggish. Our country is headed for insolvency on the fast track with the economic "rights" we already have. Add the rest above and we would be insolvent in a week. BTW, the "rights" listed above are from a speech FDR gave about a "Second Bill of Rights". I agree that none of the rights on the list are actual rights like the real ones in the Declaration of Independence. Too bad most people wouldn't agree with that assessment.
Oct '10
Re: The Unintended Consequences of "Living" Minimum Wages
John D. Rockefeller was asked about what amount of money was enough to satisfy a man. He said: just a little bit more.
There you go...
Apr '11
Re: The Unintended Consequences of "Living" Minimum Wages
Douglas Kimball
I wrote this in response to Mitt Romney's recent comments.... I'm starting to think that Mitt really doesn't get it; that he is really not a conservative at all. How can a man with his intellect miss the deeper conservative argument so many times, and still expect that we will accept that he is indeed a conservative?
Often if you find yourself asking how a smart person can be so stupid, you'll benefit from reframing the question. In this instance, it's not clear that blanket opposition to the minimum wage is the most effective strategy for keeping it down. This was Bush's strategy, and resulted in a ~50% increase when Democrats took over Congress. This was opposed in the Senate by 3 votes. We've got a more conservative Congress now, which might amass twice, or three times that, but we still have a filibuster proof minimum wage increasing caucus waiting for the economy to improve a little.
This fight did not just lose on substance, but was a massive fundraiser and political winner for Democrats. Indexing the oppression to a measure that mildly undercounts inflation keeps it low and disarms Democrats.