Both the Socialist Party USA and Democratic Socialists of America highlight the idea of a super minimum wage law—a “living wage”—on their websites. The former group says that “the current left and progressive labor movement’s call for a $15 minimum wage” is an important element of its “democratic socialist vision.”1 The latter group bemoans the existing minimum wage law as “basically criminal” and calls for its own version of a much higher minimum wage.2
The obvious question here is: Why do these socialists advocate a policy that is so stingy toward lower-wage workers? Why do they propose a fifteen dollar an hour “living wage” and not a $150 an hour “living-high-on-the-hog” wage? The Democratic Socialists of America say that even a twenty dollar an hour “living wage” would be “an unrealistic goal in our current political climate given the power of the right. . . .”3 Politics, they say, is the only thing holding them back. Otherwise, sure, a $150 an hour minimum wage would be a great thing.
Socialists routinely reject economic logic and reality, which tells us that minimum wage laws actually discriminate against relatively unskilled, entry-level workers, especially teenagers just getting started in the job market. Want to make it harder for new workers to get a job? Impose a minimum wage.
Socialists believe that low and unfair wages are inherent in the capitalist system because they adhere to the long-disproven Marxian “labor theory of value,” which holds that labor is the sole source of value. From that perspective, employers essentially steal that value from workers. As the Democratic Socialists of America explain: “In a capitalist system working people will always fall short of justice when it comes to wages, since the basic logic of the system dictates that a small group of owners appropriates the wealth generated by a company, which then reluctantly forks over a small portion of that wealth to the workers who created it.”4
One implication of this theory is that “social justice” is served by using the coercive powers of government to confiscate at least some of the allegedly ill-gotten profits of capitalists with minimum wage laws, corporation income taxes, nationalization of industry, and any other available means. The economy is viewed as a “zero-sum game”—that is, every dollar in the pocket of a capitalist is a dollar that was unjustly taken from the pocket of a worker.
THE ECONOMIC REALITY OF MINIMUM WAGE LAWS
Across time and across countries, economists know that minimum wage laws harm low-skilled workers. In 1979, a survey of American professional economists found that 90 percent agreed that higher minimum wages increase unemployment, especially for young and unskilled workers.5 It simply prices them out of the job market, demanding more for their services than they are likely to produce for an employer in profit. In the twenty-first century, New York Times columnist Paul Krugman, in his widely read textbook on microeconomics (coauthored with Robin Wells), describes the effects of super-high minimum wage laws in such European countries as Greece and Spain. The “disproportionately young, from the ages of 18 to 30,” are “locked out [of employment] without any prospect of finding a good job.”6 In these countries “a generation of young people is unable to get adequate job training, develop careers, and save for their future,” thanks to high minimum wage laws.7 “These young people,” moreover, “are also more likely to engage in crime.”8
In the 1930s, the original federal minimum wage law had a similar effect in poor communities in the United States. The minimum wage was set at twenty-five cents an hour, when the average American wage was 62.7 cents. Only about 300,000 workers in a labor force of fifty-four million were covered by the law.9 But in Puerto Rico, where the average wage was only about twelve cents an hour, the effect of the minimum wage law was catastrophic; businesses could not afford to pay it. As reported by the New York Times: “[T]he law applied to Puerto Rico ends employment for approximately 120,000 persons. It is also believed to terminate prospects for any possible further industrialization.”10 The unemployment rate in Puerto Rico eventually approached 50 percent.
Another group disproportionately hit by the federal minimum wage law is black teenagers. All teenagers suffer from a higher unemployment rate, but since the advent of minimum wage laws in the 1930s, the black teenage unemployment rate has been as much as two-and-a-half times higher than the white teenage unemployment rate.11 To pick just one year (2015), for example, while the “official” national unemployment rate, according to the U.S. Bureau of Labor Statistics, was 4.3 percent, the white teenage (sixteen to nineteen) unemployment rate was just under 14 percent while the black teenage unemployment rate was 23 percent.12
The reason is that teenagers, compared to the rest of the working population, are less well educated and skilled, and therefore less productive as employees. Minimum wage laws take away their one competitive advantage, which is price. In a free market, an employer might choose to hire a lower-priced, if less productive employee, and train her on the job. Minimum wage laws make that unaffordable for many employers; and black teenagers in lower-income neighborhoods, educated at dysfunctional and sometimes downright fraudulent public schools, are put at an even greater competitive disadvantage by minimum wage laws. Lower education levels translate into lower job skill levels in the eyes of employers. It’s hard to get even an entry-level job if the government-run schools have failed to adequately teach basic reading, writing, math, and communication skills. That is why increases in the minimum wage are so disproportionately harmful to black inner-city teenagers.
LABOR UNIONS AND THE MINIMUM WAGE
The Socialist Party USA proudly boasts that “progressive labor unions” are leading the way for a more than doubling of the federal minimum wage. Unions don’t care about “the poor,” they care about their members, and few of their members are minimum wage workers. Unions support increases in the minimum wage because they understand that low-skilled, nonunion labor is often a substitute, in the eyes of employers, for more experienced, unionized labor. Their goal has always been to use the minimum wage law against labor market competition. They are happy to use groups like the Socialist Party USA and Democratic Socialists of America as dupes or pawns in their efforts to price the least-skilled and lowest-paid workers out of jobs.
Economist Walter Williams noted, for instance, that during the Apartheid era in South Africa, construction unions used minimum wage “equal pay” laws to eliminate the competitive advantage of black construction workers who were willing to work for $1.52 an hour less than white workers.13 American labor unions have similarly pushed for minimum wage laws that take away the competitive advantage of less expensive, often ethnic minority, workers. In 1955, four American textile industry unions testified before Congress demanding an increase in the Puerto Rican minimum wage. They complained that the “wage gap” between Puerto Rican and American textile workers gave Puerto Rico “competitive advantages over the mainland.”14 Economist Simon Rottenberg pointed out that the unions’ intention was “not to improve the conditions of Puerto Rican workers so much as to deprive those workers of employment opportunities by compelling them to offer their services at a high legally defined price. . . . The minimum wage law is an instrumental tactic employed by unions to achieve that purpose.”15
It wasn’t just Puerto Rico, it was the largely non-unionized American South, which, in the 1930s, was providing vigorous competition to northern industries. Northern unions, with the support of northern corporations, agitated for higher minimum wage laws to deny southern firms their competitive advantage.16 As explained by Senator Paul Douglas (who was also a professional economist): “So far as the employers were concerned, the northern textile industry was definitely in favor of the bill [to raise the minimum wage], and opposed to the granting of any regional differentials. It welcomed a national scale as a means of protecting themselves against southern competition with lower wages.”17
Massachusetts industrialists and politicians were especially vociferous in their push for a higher minimum wage that would hamstring southern industry with higher costs. The governor of Massachusetts, Charles Hurley, wrote a letter to members of Congress from his state stating how “important it is for such Federal legislation to be adopted” so that “Massachusetts [was] to have equal competition with other sections of the country,” meaning of course the South.18 Massachusetts protectionists in Congress bitterly complained that southern factories provided “corrosive competition.”19 In other words, southern factories were providing jobs for southern workers who were outcompeting their northern counterparts.
Labor unions and certain corporations have long collaborated to support higher minimum wage laws in order to price low-skilled, competing laborers out of jobs. At the same time, unions have also lobbied for government job-training programs, food stamps, and other forms of welfare for those who are thrown out of work by higher minimum wages. As Walter Williams explains: “[I]f unemployment [caused by higher minimum wages] meant starvation, there might be considerable political resistance to higher mandated wages. Unions therefore have incentives to support . . . incomesubsidy programs, such as the Job Corps, the Comprehensive Training and Education Act, summer work programs, food stamps, public service employment, and welfare. . . . Income-subsidy programs disguise the true effects of labor market restrictions caused by unions . . . by casting a few crumbs to those denied jobs in order to keep them quiet, thereby contributing to the creation of a permanent welfare class.”20
It is difficult to think of a quicker means of increasing poverty than adopting minimum wage laws, let alone “super” minimum wage laws. Minimum wage laws are a contributing factor to maximum unemployment.