Carpe Diem

Thomas Sowell on the tragedy of the minimum wage

minwage1

Cartoon by Henry Payne.

Thomas Sowell writing in “The Thomas Sowell Reader”:

“It would be comforting to believe that the government can simply decree higher pay for low-wage workers, without having to worry about unfortunate repercussions, but the preponderance of evidence indicates that labor is not exempt from the basic economic principle that artificially high prices cause surpluses. In the case of the surplus of human beings, that can be a special tragedy when they are already from low-income, unskilled or minority backgrounds and urgently need to get on the job ladder, if they are ever to move up the ladder by acquiring experience and skills.”

Update: Here’s another challenge to proponents of the minimum wage based on Thomas Sowell’s quote above, and this related quote from Milton Friedman: “The effects of the minimum wage have been concentrated on the groups that the do-gooders would most like to help. The people who have been hurt most by the minimum wage laws are the blacks. I have often said that the most anti-black law on the books of this land is the minimum wage law.”

Q: How do supporters of the minimum wage defend a law that disproportionately and adversely affects low-income minority groups, especially low-skilled black teenagers (current jobless rate is 37.8% for black teens and 43.3% for black male teens)? Or do you deny the claim that the minimum wage disproportionately affects low-income minority populations?

54 thoughts on “Thomas Sowell on the tragedy of the minimum wage

  1. Per capita real income was $20,000 in 1968 when the real minimum wage was $10 an hour.

    Yet, unemployment was 3.5% and the teen labor force participation rate was rising.

    Preventing a cold is easier than curing a cold. I suspect, if the real minimum wage was $10 an hour before the 2008 financial crisis, a higher floor would’ve been placed on the economic downturn.

    And, without periodic increases in the minimum wage, who knows how far the real minimum wage can fall?

    • And, without periodic increases in the minimum wage, who knows how far the real minimum wage can fall?

      Well, let’s find out.

      We know what the real minimum wage is when the mandated minimum wage is not increased for so long that workers are making more than that amount.

      • Why wouldn’t some people make $2 an hour or less (because they had to or it worked out that way), while other people refuse to work for less than $10 an hour.

        • So what could we conclude about the person refusing to work for less than $10/hr

          -damn hard worker that does whatever it takes
          -skilled
          -One who “gets it”
          -goal oriented
          -unemployed

          works for $2/hr
          -unskilled
          -pity party?
          -10 years of age being paid under the table
          -first job
          -Illegal immigrant
          - No self esteem?
          -No motivation?
          -lazy
          -refuses to cut lawns and make a hell of a lot more? (see LAZY)

          You may think your helping people at the bottom of the latter by giving them pity and free rides for brownie points and good feelings, but it does nothing. I’m guessing you were not given what you have now, you busted ass. Why shouldn’t everyone else?

    • gee, i wonder if 1968 might have been affected by a large number of young americans drafted and sent to southeast asia and removed from the domestic work pool.

      this is not a one factor system.

      the rest of your arguments are just unsupported gibberish based on magical thinking.

      “I suspect, if the real minimum wage was $10 an hour before the 2008 financial crisis, a higher floor would’ve been placed on the economic downturn.”

      how? so if unemployment were higher before the crisis and companies were less able to adapt during it, they would have done better? this crisis had it’s roots in a lending bubble. the min wage would have done nothing about that. so by what mechanism would this absurd claim work?

      and this:

      “Why wouldn’t some people make $2 an hour or less (because they had to or it worked out that way), while other people refuse to work for less than $10 an hour.”

      is just ridiculous.

      it ignores every basic notion of markets. it’s like saying well, why wouldn’t they sell cheerios at $50 a box.

      because no one would buy them. or why would consumers not hold out and demand them at $1 a box. because no one would sell them.

      you seem unable to grasp the basic mechanism by which markets work.

      so why do such a small percentage of workers make the minimum wage now? why are they not all forced down to it?

      skills have value and get rewarded. you have a sense of what they are worth and so do perspective employers. when you agree, you get hired.

      these people you speak of who would make $2 and hour, why wouldn’t they be permanently unemployed at a $10 minimum wage?

      if employers think they are worth $2, they are not going to hire them at $10.

      if you have skills worth more than $10, then you will get paid more. if you have skills worth less, then you will get paid less or, if employers are forbidden from doing so, not hired at all.

      • Morning Morg,

        Unfortunately – the “you get paid what you’re worth” model left the building ages ago. Today – someone’s worth and their pay are distant cousins at best. Look at Wall Street, politicians, college coaches, college professors, CEOs, athletes.

        All the hand-wringing over a minimum wage increase for less than 2% of the population? I’m missing something.

        • What you’re missing is that, in a market system, what something “is worth” is simply what a buyer will pay. There are various methods for buyers to evaluate worth.

          Strictly practical methods are some variation of estimating value added that will accrue to the buyer. On that basis, the buyer will be shown to be wrong if the buyer loses money.

          Buyers also may have other ways to evaluate worth – status, instant gratification, whim, perceived political advantage, etc. These are difficult or impossible to judge as right or wrong – the judgment will just be a matter of opinion.

          The “worth” of labor in the market has nothing to do with fundamental human worth, which is why the word is an unfortunate shorthand for the market value of labor.

          The money value of labor is forward-looking (when based on monetary value at all) – it can only be estimated (well or poorly).

        • moe,

          the “you get paid what you’re worth” model left the building ages ago

          This is categorically false.

          Wall Street execuctives and bankers provide financial products to people to build and invest in their future. As a result, the best are responsible for hundreds of billions of dollars of growth annually, making their salaries and bonuses pale in comparison.

          Politicians are paid all right, but not spectacularly by American standards. The very top politicians draw salaries in the range of the upper $100,000 to lower $200,000, enough to put them in the top 5%, but no where near the top 1%, despite being at the pinacle of political power in the US. The typical politician earns less than $75,000 in salary.

          Top college coaches are responsible for bringing hundreds of millions of dollars to their colleges in ticket sales and alumni donations. The median college coach’s salary is less than $100,000.

          Top college professors provide top education to tens of thousands of students, as well as advancing cutting edge research. And college professors aren’t spectacularly compensated. The median salary for this group is less than $100,000.

          Top CEO’s, provide huge profits to their companies and even more profits to their customers, making their compensation pale in comparison.

          Top athletes provide entertainment to hundreds of millions of fans, making their compensation pale in comparison to the total value of the entertainment they provide.

          The funny thing about all the people you listed above is that none of them typically make an enormous amount and some make a paltry amount. They typical athlete barely makes ends meet. If you think the pro NFL’ers or MLB’ers are typical, then you really don’t know about what you are talking.

          • Ken, no disrespect intended, but we live in completely different worlds.

            My job precludes me from spending the time to list salaries – but I can leave you with one example: Duke CEO Bill Johnson -resigns after one day on the job – makes $44.4 Million.

            How much value did he add to anything but his bank account? There are many more of these Ken…

        • moe-

          and your evidence for that is what?

          if a wide receiver can produce just 1 more catch a game than a competitor and the team can win 2 more games a season, he’s worth a ton etc etc.

          just how are you adjuducating what they are worth? you think all the wall st firms and sports teams are just stupid? they sure seem to make a lot of money for idiots.

          or are you saying we’re underpaid? i could get behind that. :-P

          politicians and government union workers may be a special case at their hiring has ZERO to do with roi or productivity and hell, they basically vote for their own pay, but to claim that loads of people are overpaid is going to be tough to support.

          wall st has laid off a zillion people. probably 1 in 3 people who worked there in 2007 are gone. if, with such a supply of labor, firms are still overpaying instead of grabbing up qualified folks on the cheap and ditching the overpaid, then they are nuts.

          your view on their pay vs performance is irrelevant. it’s the view of the boss and shareholders that matters.

          i think anyone who gets paid even $1 to be a mime is overpaid. but others hire them. that, as they say, is what makes a market. the price of a ferrari 458 is $250k. you might say “that’s way too expensive”. such is your privilege. but others disagree and they are sold out and on backorder. despite your view on overpriced, the market thinks they are under-priced. be careful equating your own views with market price.

          your (or my) agreement is not required to set a market price.

          • As usual, you’ve given me points to ponder…appreciaste your response.

            I guess if one is to say “the market” determines what ones worth/pay is…then I would counter that “the market” is broken. When a watch stops working it is not useful as a reference.

          • Moe
            I guess if one is to say “the market” determines what ones worth/pay is…then I would counter that “the market” is broken.

            What system would you prefer for determining how much people are paid?

            Do you feel that you or I or morganovich are qualified to determine how much to pay Kobe Bryant ($30.45 million for 2013), or should we perhaps acknowledge that someone working for that business known as the Lakers can best determine his value to the business? Does he generate more income than his cost?

          • Ron H.

            Unfortunately I don’t have all the answers – however, acknowledging the problem even exists is a start. You ask valid questions.

    • Per capita real income was $20,000 in 1968 when the real minimum wage was $10 an hour.

      For that to be meaningful, wouldn’t you need to include more information, like how many people were in the workforce? Per capita doesn’t tell us much about people’s actual earnings.

  2. I find the current fixation n the minimum wage a bit puzzling. Only a minute fraction—-far less than 2 percent of the USA workforce—is paid at the minimum wage.

    Add on, the real adjusted value of the minimum wage is down about 30 percent from the 1960s.

    Adjusted for inflation, minimum wage workers are paid less today than 50 years ago. A rising tide did not lift all boats.

    Meanwhile, there are about 1.2 million licensed attorneys (lawyers) in the USA. Every one of these lawyers benefits from barriers to entry into the profession, and from a court and regulatory system they control.

    A much bigger issue is not the minimum wage, but whether there should be a “maximum wage” for lawyers.

    I suggest radical reformation of law schools—just blend them into undergrad education and give a law degree in four years—and creation of specialty lawyers who handle routine matters. I am thinking $40 an hour is what lawyers should max out at.

    But then..that would not be dope for the talk radio crowd addicts that now dominates the right-wing in the USA.

  3. I’m quite sure the economists who advise the numerous countries that have read the same studies apparently do not agree.

    or lets’s put it a different way – is there a list of countries that used to have some form of floor wage policy that discarded it entirely and when they did, gave the reason that is given here as why?

    Anyone can do a “study” these days and AEI and like-minded seem to do a lot – that for some odd reason just fly in the face of how the real world is actually working.

    I know of no country that started out with a minimum wage… they all adopted it as the country matured…

    and I’ll accept the idea that countries can and do change their mind and back away from something they originally enacted after they found out it actually was harmful but slavery is often given as an example of how countries change and all I point out is that countries that used to have slaves and outlawed it – did not later change their minds and go back to it.

    that’s what has happened to the minimum wage. At first, it was not there, then it is , and now the “studies” are saying it is wrong and we should abandon it.

    good enough. How many have abandoned it so far?

    Germany is trying to abandon it but not for trade workers but just service workers and the issue is still under fierce debate because of concerns that people who do earn a living wage and save enough for their health care and retirement will ultimately require other taxpayers to pay for their entitlements.

    and that seems to be part of what is involved from the country’s points of views and not really address in the “studies”.

    A more convincing study – might be one which shows that the total cost of entitlements is HIGHER with minimum wage policies than if they were repealed.

    A less convincing study would be one that advocated getting rid of the minimum wage and all entitlements.

    at that point – people would realize that there is more than just economics in play because if economics was the only criteria – then we’d have no entitlements to start with, right?

    So the minimum wage issue – from the country’s point of view appears to be about more than just economics…or
    else they would not be also worrying about living wages, health care and entitlements.

    One interesting side note is that many industrialized nations already have policies that mandate universal health care and retirement pensions. Take Singapore – a 30% payroll tax – mandatory and universal health care for all and pensions for all… so a lot less concern about the minimum wage…. perhaps.

    • larry, do you ever get tired of repeating this same appeal to practice fallacy over and over?

      1. it proves nothing.

      2. it demonstrates that you are thinking about this the wrong way. baked into your assumptions is the fact that economists make wage policy and that their views are the ones that win out. this is clearly untrue. nearly all economists favor free trade. hell, you can PROVE that tariffs create a deadweight loss for the imposing nation. yet pretty much every nation has them. wages are no different.

      please get this through your head: LAWS ARE MADE BY POLITICIANS, NOT ECONOMISTS.

      they are made for political reasons, not economic ones. minimum wage laws are not a reflection of broad economic views, they are a violation of them. the politicians just do not understand.care. they are pandering for votes, not seeking economic maximization.

      the entire edifice of your argument is nonsense.

      you logical structure goes like this:

      every country has tariffs.

      every country has economists.

      therefore, economists favor tariffs.

      that’s such wildly bad thinking it’s hard to know where to start.

      you might as well say every country has houses.

      every country had doctors.

      therefore, doctors build houses.

      it’s complete nonsense.

      this has been explained to you over and over and yet you pop up again and again on every thread making the same ridiculous arguments.

      is it that you really just flat out do not understand logic and cannot grasp this or are you just an epic troll?

      • re: appeal to practice

        guilty as charged.

        I believe in the real world guy.

        you indicate that it’s “my” logic. I indicate back at you that there are a ton more people’s “logic” involved and yet you personalize it when I’m merely pointing out that a lot more people use the very same logic and that in turn determines real policies – not theoretical ideas.

        you’re basically saying that many if not most of the world’s countries have “bad thinking” economic advisers.

        right?

        • “you indicate that it’s “my” logic. I indicate back at you that there are a ton more people’s “logic” involved and yet you personalize it when I’m merely pointing out that a lot more people use the very same logic and that in turn determines real policies – not theoretical ideas.”

          Shorter Larry: “yeah, well these guys over here disagree with you for reasons I’m not smart enough to summarize.”

          Scintillating argument, Larry.

          • re: ” Shorter Larry: “yeah, well these guys over here disagree with you for reasons I’m not smart enough to summarize.”

            well no, actually I point out that much of the world thinks like this – and the respondents don’t like that so they so it’s my ideas they disagree with…

            “my” ideas basically are to point out the realities of the many countries in the world that have this same “logic”.

            I do not even say that I agree with them – only that – those countries do exist and they do have such policies and that they also have economists advising them also.

        • I’m merely pointing out that a lot more people use the very same logic…

          No, Larry. Morganocich points out that you don’t use logic. No one else uses the invalid arguments you do.

          • ” No, Larry. Morganocich points out that you don’t use logic. No one else uses the invalid arguments you do.”

            it takes “logic” to point out that much of the rest of the world is doing something? WTF?

            you boys disagree – philosophically – with what the rest of the world does with regard to minimum wage policies but instead of admitting it you get into these dumb and asinine narratives to delude yourselves and when someone points out to you that other countries also have economic advisers as good or better than the amateurs here.. it seems to go badly for you poor dears who then have to revert to 5-year olds in dealing with that reality.

            an “appeal to practice” – that involves the much of the rest of the friggin world is not a “logic” issue.

            what you both say in essence is that the rest of the world is wrong AND than anyone who brings up the rest of the world does not understand ‘logic’ and does not ‘learn’ from you geniuses.

            lord lord… ya’ll are just a pain in the backside.

            I’ll just bet you did teach your kids and everyone of their teachers had to put up with this also.

          • an “appeal to practice” – that involves the much of the rest of the friggin world is not a “logic” issue.

            Larry. Please try to get this: an appeal to practice is a logical fallacy. It is not a valid argument, yet you use it over and over.

            Just because others do something doesn’t make it correct or good. Just because a lot of others do something doesn’t make it the best thing to do. How can you possibly NOT understand that? It’s beyond comprehension that anyone can not get it, which is why people accuse you of intentional trolling.

            While that’s possible, my own personal belief is that you have a mental defect that blocks logical thinking. Perhaps an early childhood head injury.

          • no mental defect nimrod… just keeping you fools honest here.

            re: ” an appeal to practice is a logical fallacy. It is not a valid argument, yet you use it over and over.”

            perhaps if one other person is a world of a billion people is being used but when ALL of the OCED countries and dozens more of developing countries ARE CURRENTLY “PRACTICING” – we’re talking about REALITIES which I realize you dunderheads have a great deal of problems with but sorry.. that’s the real world and not your delusional one…

            the real world works in a particular way – whether you like it or not… whether it meets with your own philosophy or ideology or not… get used to it.

          • no mental defect nimrod… just keeping you fools honest here“…

            ROFLMAO!

            Are there unicorns on your planet spam boy?

    • The reasons for not repealing minimum wage laws are the same as the reasons for adopting them in the first place – political reasons.

      • re: political reasons -

        EXACTLY!

        and political reasons often trump economic ones… and that’s basically all I point out.

        You can make an excellent Prima facie and correct argument on economic grounds only – but one must also recognize the obstacles to implementing it.

        The countries that have it – basically have social insurance programs where they subsidize those who are at or below their designated poverty threshold.

        so the calculations that they make in considering their minimum wage policies extends beyond the pure economic argument to what effect such policies might have on the costs of their entitlements.

        and to keep it simple (which I admit is not totally firm ground), is this a situation where those many other nation state govts decide it’s better for people to pay more for burgers than higher taxes for entitlements?

        that seems to be the debate going on in Germany.

    • ” The laws of economics cannot be repealed by a ruling from Congress”

      that’s entirely true and I totally agree with it.

      but countries are not run solely on the laws of economics.

      for instance, if they were, we could not justify the level of spending that we allocate for defense – as it’s just as much a black hole economically as paying people to dig ditches or sit on their couches…

      or for that matter – if a country (like a business or a household) actually did balance it budget but allocated money for worthless things.. “economically” is that also violating the laws of “economics”?

      there are two things in play here:

      1. – the hard basic realities of economics
      2. – what we spend money on – and whether or not
      that money has a real ROI or it’s just for “entertainment” or other foolish endeavors that do not have a real ROI.

      Not even hard core capitalistic enterprises allocate ever last penny – only to ROI activities, right?

      • but countries are not run solely on the laws of economics.

        Right. Which is why we end up with wasted resources, unnaturally high prices, bubbles, and failed programs.

        • re: ” I feel I should warn you, Larry: I’m not in my usual, easy-going mood. So I apologize in advance for potentially being a jerk.”

          that’s fine Jon. I respond – in kind.

          you be nice, I be nice. You be a jerk, I be a jerk.

  4. Would it not be better to instead of raising the minimum wage causing us to be less globally competitive for labor,just cut the payroll tax witholding.That way the US stays competitive with emerging market economies,and still gets the demand increase from higher take home pay for lower income labor.Of course that might raise the deficit though,but its a idea anyway

    • Singapore – one of the most competitive economies in the world – has a 30% payroll tax ….that pays for health care and pensions… and basically mandates savings rather than have everyone else pay entitlements for low paid folks.

      most industrialized countries that we compete head-to-head with have similar policies.

      • they also have no minimum wage and barely any welfare system at all. they do not pay unemployment and have extremely limited handouts that go to those who are literally starving and then, only for a short while.

        so what?

        your arguments are wildly inconsistent and incomplete. their competitiveness has to do with being very free market not with healthcare.

        • “A less convincing study would be one that advocated getting rid of the minimum wage and all entitlements.

          at that point – people would realize that there is more than just economics in play because if economics was the only criteria – then we’d have no entitlements to start with, right?”

          we have such a study. it’s called “singapore”. you just admitted that they are one of the most competitive economies in the world.

          and note that most of their healthcare is NOT an entitlement. it’s forced savings which is VERY different. you have to pay in to take out unlike medicare or a european system.

          • re: ” we have such a study. it’s called “singapore”. you just admitted that they are one of the most competitive economies in the world.”

            with health care subsidies, right?

            ” and note that most of their healthcare is NOT an entitlement. it’s forced savings which is VERY different. you have to pay in to take out unlike medicare or a european system.”

            do you consider our own SS in the same light?

            If the US had a Singapore-type approach to mandatory payroll for healthcare and pensions, you’d be okay with it?

        • re: Singapore…

          they not only have mandated payroll taxes but they subsidize the lower paid health care and pension expenses.

          correct?

          ” Singapore has a non-modified universal healthcare system where the government ensures affordability of healthcare within the public health system, largely through a system of compulsory savings, subsidies and price controls.”

          http://en.wikipedia.org/wiki/Healthcare_in_Singapore

          all I am doing here guy – is pointing out facts… nothing more…

          they are not “my” facts, they are actual verifiable facts documented by credible sources.

  5. The purpose of the minimum wag is NOT to benefit low income or racial groups. It is to benefit Unions like SEIU whose members make a bit above minimum wage and where contracts are often pegged to that minimum. They couldn’t care less if people are priced out of a job as long as their members get higher wages.

  6. One of the original purposes of the minimum wage in the US was to eliminate the competitive advantage enjoyed by companies that would hire blacks as compared to firms that would not.

    Unions, which at the time mostly did not accept blacks as members, were beneficiaries of this as well. Particularly in the form of “prevailing wage” laws, because government officials often would determine prevailing wages in an area by just calling the appropriate union and asking them. Naturally, current union scale was the prevailing wage.

    • My understanding is that it was intiated during the guilded age (30s) when people were paid pennies for a days work – not so much about black labor. Blacks were the last to be hired..after the Irish, italians, jews, etc…

      • when dozens of countries worldwide have minimum wage laws, and some of which started in the early 1900′s – making the argument about blacks is totally lame and ignorant and/or it demonstrates motivations that are less than wonderful IMHO.

        ” …. In the 1890s a group calling itself the National Anti-Sweating League was formed in Melbourne, Australia and campaigned successfully for a minimum wage via trade boards. A group with the same name campaigned from 1906 in the UK, resulting in the Trade Boards Act 1909″

        I just love the revisionist history that gets concocted here by people who have an obvious ideological agenda.. that often times tilts toward race even when race is largely not involved or only tangentially in selected geographic areas in the US that used all kinds of other laws also, to impose racism.

        I wonder how many blacks were harmed by the minimum wage laws in 1890 in Australia?

        so the revisionist history types will ignore the world in terms of history, geography, and experience and even ignore the 1880 sweatshops in our own largely white Northern milltowns to dredge up the southern experience and hold it up as the primary motivation behind minimum wage laws.

        convoluted and corrupt… lying scoundrels, but proud of it.

        that’s how those boys “roll”, eh?

        • I just love the revisionist history that gets concocted here by people who have an obvious ideological agenda“…

          That’s spam boy, always reading with the blindingly idiotic comment…

  7. I can only share my experience with minimum wage hikes. One business I operated did packaging (called literature fulfillment,) jobs were bid based on functions required-folding, stuffing, etc. The work was exempt from minimum wage & the teams made $12 an hr, then minimum wage grabbed us & production began slipping. It surprised me, it was like no matter what we produced, they were still going to make minimum wage.

    At the same time NAFTA came in & we had to compete with Mexico. Mexico’s rate was $5 for 10 hr day & mine was $5 an hr. Needless to say, that business & 40 jobs no longer exist.

    Maybe no one would want that job today, but I can tell you for almost 20 yrs I had both young & old work with me, some for days & some for years, and when it ended those that were with me cried. It really was a fun business cause we were always doing different jobs…

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