This Type of Help is Just Wrong

Published 11:00 pm Wednesday, March 2, 2016

Governor Bentley signed a bill last week preempting Birmingham’s $10.10 per hour minimum wage.  Alabama does not allow home rule for cities, meaning that the authority for municipal ordinances ultimately rests with the state, so state preemption is valid.  Whether cities should be able enact local minimum wages is worthy of debate, but today I wish to focus on the assumption of the moral high ground by proponents of Birmingham’s minimum wage.  Deliberation I think reveals that the minimum wage constitutes unjust government policy.

The economics of the minimum wage are straight-forward.  Employment is not alms; businesses pay wages based on worker productivity and the value of labor.  Imposing a minimum wage above the market wage reduces the number of low skilled workers businesses will hire.  The exact number lost due to any given minimum is disputable, but some people will lose the chance to work.

The longer run effects are worse.  More people lose their jobs as businesses start substituting machines and robots for high priced, low skilled workers.  Outlawing employment for less than $10.10 per hour does nothing to improve the skills and hence ability to earn a living of any worker.  Indeed, many persons end up with fewer job skills with a minimum wage in place.  People build job market skills through working, even at low paying jobs, and these skills allow them to earn higher wages.  People unable to get hired due to the minimum wage never build skills on the job.

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President Obama’s recently announced “Summer Opportunity Project” also highlights the value of work experience.  The President acknowledged learning important lessons about responsibility and hard work from his first job, and noted how for too many young people today “the prospect of finding a job with a blank resume, limited education, and no meaningful connections to employers can be daunting.”  Entry level jobs are ultimately more important for building job skills than for earnings.

The minimum wage shuts persons with the fewest job skills out of work altogether.  Evidence of this abounds, including a teenage unemployment rate three times higher than the overall unemployment rate.  Most tellingly, evidence shows that less than 10 percent of minimum wage workers are in poor households.  By contrast, one third of minimum wage workers live in above average income households.  Well-to-do teenagers are some of the minimum wage’s main beneficiaries.

Americans locked out of employment face a life on government assistance.  And the problem persists.  People not in the workforce concentrate in public housing.  Children growing up in this environment see most adults never working, which shapes their view of how the world works.  Our failing urban public schools fail to educate students, who then hit the labor market deficient in job skills.  The products of weak public schools need even the lowest-paid jobs to build skills.  Each increase in the minimum wage closes the only escape route from poverty and dependence for many Americans.

Some minimum wage proponents may think that working for less than a “living wage” so insults human dignity that a life on government assistance offers greater fulfillment.  Yet research demonstrates that this is false.  One of the most important determinants of happiness is earned success, the knowledge that one is responsible for the good things in your life.  Government assistance programs can provide recipients material support but not the sense of accomplishment from earned success.

The desire to help the less fortunate is admirable, and churches and charities offer Americans numerous opportunities to do so.  When a charity is ineffective, we can validly say that the thought still counts.  But when we choose to “help” through government policy, the thought no longer matters to the exclusion of actual effects.  Nobody should feel morally superior for hurting others through bad government policy.

The right to earn a living and support oneself through one’s own efforts is among the most fundamental human rights.  The minimum wage violates this right by not allowing Americans who presently lack sufficient job skills to earn $7.25 per hour to work.  Persisting on a course of action harming the intended beneficiaries is neither humane nor just public policy.

Daniel Sutter is the Charles G. Koch Professor of Economics with the Manuel H. Johnson Center for Political Economy at Troy University and host of Econversations on TrojanVision. 
Respond to him at and like the Johnson Center on Facebook.


About Dan Sutter

I am the Charles G. Koch Professor of Economics with the Manuel H. Johnson Center for Political Economy at Troy University.

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