Wednesday, February 17, 2016

How to Destroy Jobs for Inner-City Minorities (While Helping Out Private-School-Educated White Kids)

Don Boudreaux explains in a letter to a reader:

Mr. David Powell:

Dear Mr. Powell:

Thanks for your e-mail urging me to “deal with directly … Thomas Hutcheson’s support of the minimum wage as a way to transfer income to low income workers.”

Omigosh, I’ve addressed this point many times in many ways at my and Russ Roberts’s blog.  Please visit and search “minimum wage”; there you’ll find what you seek.  But here I summarize the three most important economic points:

1. Most income transfers achieved by the minimum wage are from some low-skilled workers to other low-skilled workers; in our competitive economy they are not from employers (or from consumers) to workers.  Wal-Mart, for example, can replace workers with machines or otherwise restructure its operations to minimize the costs it incurs because of the minimum wage.  And to the extent that it fails to do so, Wal-Mart’s shareholders can easily switch their investments to firms and industries whose profits are not arbitrarily lowered by the minimum wage.

2. The low-skilled workers who most likely ‘win’ from the minimum wage are teens such as my white, private-school-educated son who drives his own car; the minimum wage raises my son’s income by destroying jobs for inner-city minorities who were ‘educated’ in malfunctioning government schools and who have no reliable personal means of transportation.  Our family thanks the government for this largess, but do you really think it to be fair?  (We certainly don’t.)

3. The focus on current income is far too narrow.  Especially for young, unskilled, poorly educated people who are not college-bound, getting on-the-job experience is as important – likely more important – than whatever income they receive from entry-level jobs.  Because (as Thomas H. concedes) the minimum wage prices some low-skilled workers out of jobs, the minimum wage reduces not only the current incomes of these unfortunate people but also their future incomes.  I have no data on the matter, but I’ll bet that the percentage reduction in the lifetime incomes of workers who lose jobs to the minimum wage is larger than the percentage increase in the lifetime incomes of workers who keep their jobs after hikes in the minimum wage.  For example, the percentage addition, due to the minimum wage, to my son’s lifetime income is tiny; it’s much smaller than the percentage reduction in the lifetime income of an inner-city teen who today loses, because of the minimum wage, not only her current income but also the job experience that would have raised her income tomorrow and into the future.

Donald J. Boudreaux
Professor of Economics
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University

The above originally appeared at Cafe Hayek.

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