Minimum Wage, Maximum Discrimination

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Since the days of Adam Smith, economists have sought a set of social institutions which permit “neither dominion, nor discrimination,” to use Nobel Prize-winning economist James Buchanan’s phrase. In this, economists are joined by all people of goodwill — including those in the Biden administration, which has enshrined equity and inclusion as cornerstones of how they’ll govern.


By Dr. Caleb Fuller


What separates the economist from other social do-gooders, however, is an unflinching focus on the means used to achieve noble goals. It’s therefore with alarm that I consider the Biden administration’s dual focus on “diversity and equity” and its doubling down on the “fight for $15.” I’m alarmed because the minimum wage impedes our ability to foster a society genuinely built on “diversity and equity.”

<b>Dr. Caleb Fuller</b>
Dr. Caleb Fuller

Here’s the straight talk on the minimum wage that you probably didn’t learn in school: The minimum wage has been a powerful weapon in the arsenal of racists and bigots. Economists have illuminated the devastating effects of the minimum wage on minorities with empirical evidence and entire books on the subject, but to see one reason why the policy targets minorities, first consider a little basic economics.

Consider the demand side of the labor market. Firms will hire fewer workers if the government criminalizes voluntary agreements to work for less than $15 per hour.

This is an uncontroversial point to make about virtually any other market. If the price of apples doubles, people buy fewer apples. They buy more oranges instead. Employers do the same thing. Under the minimum wage, they start buying more machinery, like the kiosks you see in Panera. The upshot: Fewer jobs.

Now let’s consider the supply side of the labor market, where the higher minimum wage attracts new workers into the labor market — those, who like college students, might have sat on the sidelines otherwise. The upshot: More jobseekers.

Fewer jobs plus more jobseekers means that more people will be searching for jobs than there are jobs available — a labor surplus. In other words, the minimum wage creates a “buyer’s market” in labor because it causes jobseekers to line up in front of employers who have limited jobs to offer.

Suppose an employer receives 100 applicants for a job opening. How does he choose who to hire? Without the minimum wage, whoever wants the job most will outcompete other jobseekers by offering to work for less.

With a minimum wage, the employer can’t say: “Who will work for $14.95?” If he does, he’s a criminal; he literally violates the law. Since he can’t just pick the most eager jobseekers, he needs some alternative way to select from his 100 applicants.

When you have a surplus of labor in a market with a minimum wage, prices aren’t allowed to adjust, so the employer picks from that surplus based on personal preferences. These may include race, sex, gender, religion, or other personal characteristics that have little to do with productivity. In fact, in the past, it has included just that.

Faced with more jobseekers than there are jobs available, a bigoted employer bears little cost when he refuses to hire a member of a group he dislikes. He knows someone else in the applicant pool will be from his preferred group.

In a market without minimum wage, when an employer turns down an applicant to satisfy his bigoted tastes, he doesn’t have 99 other jobseekers to choose from. There’s no labor surplus. If he chooses to indulge his bigoted tastes, the job remains unfilled for longer, which means less money for our racist employer.

Consider that, in the United States, the African-American teenage male unemployment rate was lower than the white teenage male unemployment rate through the late 1940s. The 1950s saw the single largest increase (in percentage terms) of the minimum wage. The reasoning I just gave explains why the African-American teen joblessness rate then soared above whites. That gap remains to the present day.

Like Adam Smith, James Buchanan, and the Biden administration, I too desire a society where the power of bad people to exercise “dominion or discrimination” against their fellow man is constrained, even eliminated.

Presumably, my fellow Pennsylvanians do too. The fact that nearly two-thirds of them (and 89% of liberals) support a $15/hr. minimum wage is therefore troubling. My fellow citizens should consider whether this policy facilitates or impedes the ability of bad men to do harm. Economics says it facilitates.

So does history. As Princeton’s Thomas Leonard has demonstrated in his book, “Illiberal Reformers: Race, Eugenics, and American Economics in the Progressive Era,” the early minimum-wage advocates saw it as a prime tool to exercise “dominion and discrimination” over those they deemed ill-suited to reproduction. The minimum wage was well-suited to perform the Progressives’ dirty work of discriminating against (what they considered) the least productive by making them unemployable.

It has been over 100 years since the Progressive Era. But the laws of economics haven’t changed. The only question is: Have we?

[Dr. Caleb Fuller is assistant professor of economics at Grove City (Penn.) College. He has published or has forthcoming papers in the European Journal of Law and Economics, the Journal of Business Venturing Insights, the Review of Austrian Economics, the Journal of Entrepreneurship and Public Policy, the Independent Review, and others.]

16 COMMENTS

  1. I recall hearing some of these same arguments being made 30-40 years ago with proposed legislation on family medical leave. Twenty-eight years ago (1993) the Family & Medical Leave Act (FMLA) was signed into law. It was to provide employees with some job protection and only unpaid leave. Critics, mostly on the Right with their family values platform, argued on behalf of employers. It was attacked as an intrusive government mandate which would hurt businesses, harm the economy, and in particular would promote discrimination. In this case, it was discriminatory practices against women in hiring and with promotions. These are the standard and typical arguments whenever “minimum labor standards” are proposed and now echoed by the likes of the author above, a 2013 graduate of Grove City College.

  2. Every time & place that the minimum wage is raised it immediately eliminates jobs for teenagers especially in minority neighborhoods – thus preventing many of the next generation from learning a good work ethic and the other intangibles that allow for a successful career as they get older. Thus becoming more likely to depend upon the government.

      • I think the article itself illustrated the fact, but I’ll try to add to it:

        If the minimum wage is raised, it does not raise the value of the work performed, just the cost. If the cost goes up for an entry level employee, then I as an employer, will be less likely to take a chance on an un-skilled person.

        If there are less opportunities for un-skilled employees to enter the work force and learn things like showing up on time, fully completing a task without being reminded or before leaving for the day, seeing the value of being reliable when another employee does not show up and thus getting promoted, etc.
        – Then where and when do the un-skilled learn these skills?

        Also here is an interesting article from 2016 about the lower work ethic of Millenials
        From the article: So what do surveys like this show? In fact, the science does support the idea that Millennials have a lower work ethic. For example, the nationally representative Monitoring the Future project has surveyed half a million high school seniors since 1976. Here’s how the generations answered three questions relevant for work ethic:
        Boomers Gen X Millennials
        Don’t want to work hard 26% 30% 38%
        Willing to work overtime 59% 56% 47%
        If had enough money, would not work 22% 26% 29%

          • rmoc – Yeah and I’ve seen a lot of 60 – 70 year old’s take 4 hours to a task in excel that takes me 10 minutes. Does that mean the older person is “working harder?” Of course both of the examples we put forward are anecdotal.

            phil – unskilled future workers are placed on a path around the age of 5 to learn the basic skills required to participate in our society. Reading, writing, arithmetic, throw in group projects and extra-curriculars and we might have something. Could call it school.

            Additionally, if skilled workers are now applying for “unskilled” jobs b/c they can make the same amount then guess who now has leverage to negotiate a pay increase at their “skilled” position?

            A rising tide lifts all boats

  3. Back in 1938, Congress created the minimum wage. Based on the formula in that law, by 1960 that wage was $1.15 an hour. Congress changed that to $1.00. If we take that buck and apply an inflation calculator, minimum wage should be $8.85 an hour. The federal minimum wage is presently $7.25, and has been that for over a decade. Inflation happens every year, not every ten, so why is minimum wage held so low? If we do as the Democrats want, and more than double that wage, we should apply it to all jobs, including service jobs, like table serving in restaurants, and farm jobs. If farm labor paid $15 an hour, we probably would not need Mexican itinerant workers any longer, as a lot of out of work Americans would be happy to pick fruits and vegetables. The work is not that hard, and social distancing is easy in a field or orchard.

    • People that live off of government cheese are not likely to take jobs at any price. They have risen as far as they intend to and are satisfied with their place in the world. They would rather have other ambitious Americans work hard, pay taxes, and fund their laziness.

      When the day comes that those ambitious Americans have had enough, it will all collapse.

      • Such a pessimistic world view. Humans are not lazy *gestures at everything created before America’s/Capitalism’s existence….. By default humans create, innovate, explore, and dream. Who knows what wonders/ideas/inventions could be created by not tying our citizens to 40 hour a week jobs that don’t pay livable wages.

        We live in a society Hometown. That means we collectively look out for our neighbors. End of story. I don’t care if a small subset of our society would like to just sit at home and smoke weed or watch tv all day, life is difficult and there is no trophy at the end for “most productive member of society.” I do care that those of us who do participate are paid a g*d d*mn livable wage.

          • Sure thing JD. Here is a site from the Massachusetts Institute of Technology (MIT) that takes into account the basic needs for individuals/families on a per county basis.

            livingwage.mit.edu/counties/13113

            In Fayette County, the model indicates a livable wage for a single person w/no kids at $16.91/hr. For a family w/2 kids and 1 parent working the livable wage is $34.72/hr and for a family w/2 kids and 2 parents working that wage is $21.70/hr.

            So I would define a livable wage to be at least $15/hr.

        • Owl I certainly don’t remember saying anything about the rest of the world. I also believe the small subset that you reference has grown much bigger and continues to grow. Wouldn’t it be wonderful if all humans aspired to the traits that you reference but sadly reality tells us differently. You say I am a pessimist but I see myself as a realist. Too many of our politicians are eager to trade entitlements for votes And freebie handouts stifle any motivation or aspiration that many folks might have. Perhaps we must just agree to disagree 🙂

    • I don’t know where you come from but farm work is HARD labor and believe it or not farmers have a hard time finding folks to do the work for $15 and even $20 an hour. Go to the Central Valley in CA, the middle of Florida or even southern Georgia and talk to a few farmers, they bring in Central Americans not because of the wages but they work hard and it is one of those jobs that many Americans do not want. I believe the CEO from Fresh Express was on Undercover Boss a few years ago and showed how hard these folks work.

    • You are 100% WRONG. Farm Labor pays easily $15…..and most unemployed people won’t do it because it’s HARD WORK and unemployment – sitting on your butt getting a check and bellyaching about how underpriveleged you are – is easy. Go down to Middle Georgia and ask the Lane’s and the other peach / pecan growers. They’ll tell you they have trouble finding white and black people who want to work.