Minimum Questions about Minimum-Wage Legislation

by Don Boudreaux on February 27, 2013

in Myths and Fallacies, Prices, Reality Is Not Optional, Work

My most-recent column in the Pittsburgh Tribune-Review is on the folly of minimum-wage legislation.  Here are my final four paragraphs:

In the late 1940s, the unemployment rate of black teenagers in America was lower than the unemployment rate of white teenagers. In the 1950s, the minimum wage began to rise steeply and, along with it, so did the unemployment rate of teens. But the unemployment rate of black teens rose much faster than did that of white teens.

Thomas Sowell, Walter Williams and many other economists argue that the minimum wage is to blame. The arbitrarily higher wage creates a surplus of low-skilled workers; there are more people willing to work at the minimum wage than there are jobs at that wage. Because people are prohibited by law from competing for jobs by offering to work at wages lower than the minimum, employers have an overabundance of applicants for each entry-level job that needs to be filled. Employers thus tend over time to make “safe” hires — teens from prosperous suburbs with decent schools, rather than teens from the inner city with lousy schools.

Today, the unemployment rate of white teens is 20.8 percent. That of black teens is 82 percent higher, at 37.8 percent.

Do you think black teens’ much higher rate of unemployment today than that of whites is explained by racial discrimination? Is such discrimination worse today than it was in 1948? Or might a better explanation for the changing employment fortunes of black teens be that the minimum wage prices more black teens than white teens out of jobs?

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