[This is a third assignment from a previous semester. As with the second essay reproduced here on Ignore This, this assignment is but lightly edited, and it maintains its in-text citations and bibliography. In this case, the purpose for keeping these components is to maintain the overall character of the assignment (a practical proposal addressed to Senator Ron Wyden (D-Oregon) that, who knows, maybe I’ll actually submit to the man sometime in the future).]
Letter of Transmittal
The Honorable Ron Wyden
United States Senate
Washington, D.C. 20510
Dear Senator Wyden:
Enclosed is a proposal to repeal the federal minimum wage as presently administered under the Fair Labor Standards Act and replace it with a law forbidding the establishment of a wage floor by any federal, state, or local authority, effective immediately. My proposal demonstrates the problems with a minimum wage on economic, historical, and ethical grounds.
In essence, my proposal is that previous interventions into the wage-labor agreements of employers and employees be ceased and future interventions be precluded. At present, the federal minimum wage is $7.25 per hour, a fact that is cheered by proponents of the policy. However, after eight decades of empirical scrutiny, the economic literature consistently agrees that minimum wages destroy jobs. My proposal, by contrast, will open up more jobs for Americans, especially minorities and young adults.
Though minimum wage laws are nearly universal, there are still examples of developed nations without minimum wages, and, despite fears propounded by exponents of minimum wage laws, they are examples of thriving economies. As I lay out my proposal, I hope you will consider it fully and with an open mind.
Sincerest regards,
Matt Knight
Athena, OR
A Proposal to Repeal the Current Federal Minimum Wage, Invalidate Existing State Minimum Wages, and Preclude Future Wage Floor Legislation in Perpetuity
Problem
Minimum wage legislation is fraught with problems in contemporary economics and in economic history. Around the world, increases in effective legal wage floors have repeatedly caused the destruction of jobs, loss of benefits, increases in prices, and disproportionate detriment to teenagers, young adults, and minorities. Moreover, the origin of the minimum wage in the United States is a stain in our national history. While proponents of such policies today do so on grounds of concern for the poor, it is nevertheless a fact that the minimum wage found its generation in the lobbying of openly racist white unions seeking to put an end to competition from their black competitors.
Proposed Solution
My solution to the above problems is quite simple: much as there is a separation of church and state, so should there be a separation of wage and state. The federal minimum wage is administered under the Fair Labor Standards Act (FLSA). Twenty-nine states and 44 counties and cities have minimum wages that are higher than the federal minimum (“Minimum Wage Laws in the States”; “Inventory of US City and County”). At the federal level, the portion of the FLSA which administers the minimum wage must be repealed. However, the state-, county-, and city-level ordinances which define the effective legal wage floors for their respective jurisdictions can be overridden by the imposition at the federal level of a new law which would make future interventions by governments at any level into the wage agreements between employees and employers illegal.
Justifications
Effective legal wage floors pose several economic problems, as can be observed in contemporary empirical research and in the unfolding of economic history. Furthermore, in the United States of America, the minimum wage was established on the basis of explicit racism. My proposal addresses each of issues simultaneously and efficiently, with no burden to the taxpayer.
First, research has found that increases in the minimum wage results in various unintended consequences that adversely impact those the policy is ostensibly meant to help. These include increases in the price of goods, fewer hours worked, net lower monthly wages, fewer fringe benefits, and lost jobs (Renkin et al. 2017; Horton 2018; Jardim et al. 2017; Clemens et al. 2018; Kreiner et al. 2017). Moreover, it’s not as if these findings are outliers. To the contrary, a review of the minimum wage literature concluded that two-thirds of empirical studies find that minimum wage legislation has negative employment effects, while less than eight percent find positive employment effects springing from such legislation. Furthermore, the authors of the review report that 85% of the most methodologically sound studies find negative employment effects (Neumark and Wascher 2006). Importantly, a common finding among these studies is that the worst impact is borne by young adults and minorities. These groups are precisely those whom the minimum wage was intended to help. Not surprisingly, this effect is also evident in economic history.
Second, the negative impacts of effective legal wage floors can be seen in economic history, as well. Between the end of slavery and the year 1930, black Americans had a labor force participation rate that was slightly higher than that of white Americans, racial hostilities notwithstanding. During this period, there was no minimum wage, so black Americans could undercut their white competitors for jobs. However, after having been declared unconstitutional in other forms more than once by the Supreme Court, a federal minimum wage was finally established in 1938 with the passage of the Fair Labor Standards Act. The result was high and persistent unemployment for black Americans. In the recession of 1949, black unemployment reached 15.8%; from 1971 through 1997, black unemployment never fell below twice that level, and in 2009, during the Great Recession, black unemployment was more than triple the highest rate of 1949 (Sowell, “Basic Economics,” 231-233). Of interest is that explicit racism was incapable of halting economic interaction until it was backed by the coercive power of the state.
Third, the minimum wage came to be in the United States for explicitly racist reasons. In advocating for the Davis-Bacon Act, the first act to establish an effective legal wage floor in any industry in the country, Representatives Clayton Allgood of Alabama and John J. Cochran of Missouri, and William Green of the American Federation of Labor all argued that black labor was “demoraliz[ing] wage rates” for white workers. Additionally, Representatives Anning Prall and Fiorrello La Guardia, both of New York, argued in favor of Davis-Bacon as it would also prevent migrant workers from undercutting Americans (“Race & Economics,” 34-35). The bill passed, but was ultimately ruled unconstitutional by the Supreme Court. As mentioned above, however, it was eventually permanently replaced by the FLSA, whose results have been precisely those sought by the likes of Allgood, Cochran, Green, Prall, and La Guardia. Of course, the bad intentions of the past do not reflect the intentions of supporters of effective legal wage floors today, and such people have objections.
There are common objections to my proposal. Perhaps the most common objection is that workers would not be paid enough in the absence of a minimum wage. However, it’s not clear that this is so. In fact, by observing both economic history and contemporary economic data, we can see that it’s not actually the case. In the 1940s, inflation rendered the legal wage floor ineffective, meaning that everyone, black and white, was making well above the mandatory minimum wage (Sowell, “Discrimination and Disparities,” 45-46). Today, as Moody’s economist Adam Ozimek points out, businesses which employ 1,000 people or more pay a “large firm wage premium” of 9% to 11% above the market wage. Moreover, the monopsony model (the model from which springs the argument that no minimum wage would mean a decline in wages) is inconsistent with the empirical reality that minimum wage laws lead to increased prices. The monopsony model predicts, instead, that minimum wage laws should lead to increased output, thereby pushing down prices (Ozimek 2016).
Another common objection is that the minimum wage is a tool that is used to fight poverty. This, too, is a claim contrary to empirical reality. Since 1995, of the eight studies that have been published examining the impact of the minimum wage on poverty, all but one have indicated that the policy is utterly ineffective as a means of lifting people out of poverty. Furthermore, only around 11% of minimum-wage earners who would benefit from an increase in the minimum wage live in poor households to begin with (Wilson 2012).
Finally, another common objection is that nearly every developed country has a minimum wage. While this is true, it’s not clear that it is, in fact, an argument in favor of minimum wages. As Thomas Sowell points out, Switzerland has no minimum wage, and its unemployment rate hit a “high” of 3.9% in 2003. Hong Kong, which had no minimum wage as a British colony, likewise had very low unemployment, as did the United States prior to the passage of its very own effective legal wage floor (Sowell, “Minimum Wage Madness”).
In conclusion, Mr. Wyden, it behooves you and your colleagues in Congress to fight to repeal the minimum wage. Doing so will allow low-skilled, minority workers and young adults to gain valuable work experience. Furthermore, the empirical data support this proposal—there’s no reason to be concerned that such a repeal will come at an enormous cost in the wages of poor Americans. Finally, justice sits on the side of repeal because the history of establishing effective legal wage floors is rooted in explicitly racist grounds.
Works Cited
Clemens et al. “The Minimum Wage, Fringe Benefits, and Worker Welfare.” NBER, NBER, 18 May 2018, http://www.nber.org/papers/w24635. Accessed 20 February 2019.
Horton, John J. “Price Floors and Employer Preferences: Evidence from a Minimum Wage Experiment.” John J. Horton, 2018, john-joseph-horton.com/papers/minimum_wage.pdf. Accessed 21 February 2019.
“Inventory of US City and County Minimum Wage Ordinances.” Center for Labor Research and Education, UC Berkeley, 12 Feb. 2019, laborcenter.berkeley.edu/minimum-wage-living-wage-resources/inventory-of-us-city-and-county-minimum-wage-ordinances/. Accessed 23 February 2019.
Jardim et al. “Minimum Wage Increases, Wages, and Low-Wage Employment: Evidence from Seattle.” NBER, NBER, 15 June 2017, http://www.nber.org/papers/w23532. Accessed 21 February 2019.
Kreiner et al. “Do Lower Minimum Wages for Young Workers Raise Their Employment? Evidence from a Danish Discontinuity.” Centre for Economic Policy Research, 4 June 2017, cepr.org/sites/default/files/3564_KREINER%20-%20Do%20Lower%20Minimum%20Wages%20for%20Young%20Workers%20Raise%20their%20Employment_0.pdf. Accessed 21 February 2019.
“Minimum Wage Laws in the States – Wage and Hour Division.” United States Department of Labor, 1 Jan. 2019, www.dol.gov/whd/minwage/america.htm. Accessed 23 February 2019.
Neumark, David, and William Wascher. “Minimum Wages and Employment: A Review of Evidence from the New Minimum Wage Research.” NBER, NBER, 6 Nov. 2006, http://www.nber.org/papers/w12663. Accessed 21 February 2019.
Ozimek, Adam. “Gauging Big Firms’ Power Over Wages.” Economy.com, 26 Oct. 2016, http://www.economy.com/dismal/analysis/datapoints/286444/Gauging-Big-Firms-Power-Over-Wages/. Accessed 23 February 2019.
Renkin et al. “The Pass-through of Minimum Wages into US Retail Prices: Evidence from Supermarket Scanner Data.” Central European University, 2017, economics.ceu.edu/sites/economics.ceu.edu/files/attachment/event/1118/tobiasrenkinjmp.pdf. Accessed 21 February 2019.
Sowell, Thomas. Basic Economics, 5th ed. Basic Books, 2015, pp. 231–233. Print.
—Discrimination and Disparities. Basic Books, 2018, pp. 45–46. Print.
Sowell, Thomas. “Minimum Wage Madness, by Dr. Thomas Sowell.” Creators Syndicate, 17 Sept. 2013, http://www.creators.com/read/thomas-sowell/09/13/minimum-wage-madness. Accessed 23 February 2019.
Williams, Walter E. Race & Economics: How Much Can Be Blamed on Discrimination?. Stanford: Hoover Institution Press, 2011, pp. 35–36. Print.
Wilson, Mark. “The Negative Effects of Minimum Wage Laws.” Cato Institute, 21 June 2012, object.cato.org/sites/cato.org/files/pubs/pdf/PA701.pdf. Accessed 22 February 2019.
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