The AFL-CIO is the nation’s largest labor organization. A federation of fifty-six national and international unions representing more than twelve million workers, it was formed in 1955 when the American Federation of Labor joined with the Congress of Industrial Organizations. Since it typically backs Democratic presidential candidates, no one was especially surprised by the group’s official endorsement of Barack Obama on June 26, 2008. What did cause something of a stir, however, was a speech given five days later at a steelworkers’ convention in Las Vegas by the AFL-CIO’s secretary-treasurer, Richard Trumka, who urged members not to stay home on Election Day just because Obama is black.
In his address, which later was posted on YouTube and garnered more than a half-million views (that’s nothing if you’re Beyoncé, but nothing to sneeze at if you’re a gruff, middle-aged union boss), Trumka told of visiting his hometown of Nemacolin, Pennsylvania, just before the state’s Democratic primary election and running into an elderly woman he had known as a child. When he asked the woman which candidate she was supporting, she said Hillary Clinton. Trumka asked her why, and the woman, after some coaxing, eventually said that it was due to Obama’s race. “There’s a lot of folks out there just like that woman, and a lot of them are good union people,” says Trumka in the video, assuring everyone that dues-paying bigots are welcome in the labor movement. “They just can’t get past the idea that there is something wrong with voting for a black man. Well, those of us who know better can’t afford to sit silently or look the other way while it’s happening.”
“There is no evil that has inflicted more pain and more suffering than racism,” continues Trumka, who would become president of the AFL-CIO the following year. “And it’s something that we in the labor movement have a very, very special responsibility to challenge.”
Watching the video, I perked up at this point, curious where Trumka might be headed. Union leaders may be dismayed by remnants of overt racism in the rank and file, but it’s hardly surprising, given the history of the American labor movement. As Paul Moreno, the author of Black Americans and Organized Labor, noted, “Organized labor was largely hostile to the antislavery movement, and most abolitionists opposed unions.” Moreno wrote that “white workers feared competition from emancipated slaves, and white workers in the North especially feared an influx of southern freedmen.”1
After the Civil War black leaders continued to be skeptical of unions. In his 1874 essay “The Folly, Tyranny, and Wickedness of Labor Unions,” Frederick Douglass argued that there was “abundant proof almost every day of their mischievous influence upon every industrial interest in the country.” W. E. B. Du Bois called trade unions “the greatest enemy of the black working man.” Booker T. Washington, who was born a slave and opposed unions his entire life, wrote in the Atlantic Monthly in 1913 that “the average Negro who comes to town does not understand the necessity or advantage of a labor organization which stands between him and his employer and aims apparently to make a monopoly of the opportunity for labor.”
It was Washington’s view that for all of the suffering endured under slavery, that institution had left blacks with many of the skills necessary to rise economically—“not only as farmers but as carpenters, blacksmiths, wheelwrights, brick masons, engineers”—if only unions would let them. T. Thomas Fortune, a leading black journalist and Washington confidant, expressed a similar sentiment in a 1903 essay. “In the skilled trades, at the close of the War of the Rebellion, most of the work was done by Negroes educated as artisans in the hard school of slavery,” wrote Fortune, who like Washington was born a slave. “But there has been a steady decline in the number of such laborers, not because of lack of skill, but because trade unionism has gradually taken possession of such employments in the South, and will not allow the Negro to work alongside of the white man. And this is the rule of the trade unions in all parts of the country.”
Economist Ray Marshall, President Jimmy Carter’s pro-union labor secretary, made a name for himself in academia by documenting how labor unions have discriminated against blacks. In his 1967 book, The Negro Worker, which includes a chapter titled “The Racial Practices of National and Local Unions,” Marshall wrote that “in 1930 there were at least 26 national unions which barred Negroes from membership by formal means,” and ten of them were AFL affiliates. After the Supreme Court’s 1954 school desegregation ruling, anti-integrationist unions formed, and actively recruited members of the Ku Klux Klan. Official policies toward black workers began to change when the AFL merged with the CIO, which was more committed to racial equality, but Marshall cautioned:
The decline in formal exclusion by international unions does not mean that discrimination has declined, because local affiliates of these unions, as well as others which never had formal race bars, exclude Negroes by a number of informal means. These include agreements not to sponsor Negroes for membership; refusal to admit Negroes into apprenticeship programs or to accept their applications; general “understandings” to vote against Negroes if they are proposed . . . [and] refusal of journeyman status to Negroes by means of examinations which either are not given to whites or are rigged so that Negroes cannot pass them.2
This history is not well known today. And unlike their predecessors, the contemporary black elite tend to argue that the interests of Big Labor and the black underclass are more or less aligned. Labor unions give generously to black organizations like the NAACP, the National Urban League, Jesse Jackson’s Rainbow PUSH Coalition, and Al Sharpton’s National Action Network. In return, black leaders parrot the union line. But when Trumka told his audience that the labor movement has a “special responsibility” to challenge racism, I thought for a moment that he was about to pay some lip service to this ugly past.
Silly me.
It turned out that the reason Big Labor has a unique obligation to confront racism has nothing at all to do with the movement’s own history of discrimination. Rather, it’s because unions “know, better than anyone else, how racism is used to divide working people,” Trumka said. “We’ve seen how companies set worker against worker. They throw white workers a few crumbs. They discriminate against black workers or Latino workers. And we all—we all—end up losing.” In Trumka’s telling, the labor movement has been a force for racial equality, and the real enemy of blacks is corporate America. As for that Hillary Clinton supporter he encountered? “I don’t think we ought to be out there pointing fingers and calling them racists,” he said. “Instead we need to educate them.”
Trumka did not educate his audience that day with any examples of how corporate racism has been more detrimental to blacks than the union variety, maybe because there is so little evidence pointing in that direction. Yet there is plenty of evidence that many public policies supported by the AFL-CIO and other labor groups today leave the black underclass worse off. The problem is not that today’s labor leaders are motivated by racial animus. Rather, it’s that so much of what they advocate in the name of expanding the middle class is in practice preventing many blacks from joining its ranks.
Minimum-wage laws, which determine the lowest price for labor that an employer may pay, are one of the more obvious examples of this phenomenon. But to understand why these laws make it harder for blacks to find jobs, it first helps to look at how minimum-wage laws impact labor markets in general. And it turns out that economists, a famously argumentative lot, tend to agree that minimum-wage laws destroy jobs. In fact, polls have shown that more than 90 percent of professional economists contend that increasing the minimum wage lowers employment for minimum-wage workers. Even highly respected economists such as David Card and Alan Krueger, who are skeptical of the consensus view, concede that the minimum-wage hypothesis “is one of the clearest and most widely appreciated in the field of economics.”3 Why? Because a basic tenet of economics is that a rise in the cost of something tends to lower demand for it. Put another way, an artificial increase in the price of something causes less of it to be purchased. When that something is the price of labor, the result is a labor surplus, also known as unemployment. “It’s simple,” wrote Gary Becker, who won the Nobel Prize in Economics in 1992, “hike the minimum wage and you put people out of work.”4
In 2008 economists David Neumark and William Wascher published a book that surveyed the minimum-wage literature of the previous three decades. They reviewed more than one hundred academic studies on the impact of such laws and found “overwhelming” evidence that younger, lesser-skilled workers suffer what economists call “disemployment effects,” or a loss of employment when the minimum wage goes up:
Our overall sense of the literature is that the preponderance of evidence supports the view that minimum wages reduce the employment of low-wage workers. . . . Moreover, when researchers focus on the least-skilled groups that are most likely to be directly affected by minimum wage increases, the evidence for disemployment effects seems especially strong.”5
When the government mandates that an employer pay someone more than the employer thinks the person is worth, fewer people get hired.
When I asked Neumark, a professor of economics at the University of California, Irvine, about research that shows no harmful effects on hiring when the minimum wage is increased, he told me that those studies are outliers. “There’s quite a bit of agreement,” he said in an interview. “You do see papers sometimes claiming that there are no disemployment effects from the minimum wage. They tend to come from the same people. And clearly some of them, the ones coming out of the UC Berkeley group”—a reference to the famously liberal flagship campus of the University of California—“clearly they have a political agenda.” Neumark also said that the press has a tendency to play up contrarian studies, which gives them more weight than they might deserve. “Most of the studies say there’s a disemployment effect, so that’s not really news anymore. So you get disproportionate attention in the media and sometimes in the profession to studies that find surprising results.”6
Two go-to academics for the pro-minimum-wage crowd are the aforementioned David Card of Berkeley and Alan Krueger of Princeton. In 1994, when both men were teaching at Princeton, they coauthored a widely cited case study that compared employment changes in fast-food restaurants in New Jersey and Pennsylvania after New Jersey’s minimum wage rose from $4.25 to $5.05 per hour. Following the increase employment fell in New Jersey, as most economists would have predicted. But because it also fell by just as much in Pennsylvania, which hadn’t hiked its own minimum, Card and Krueger argued that the drop in both states must have been caused by something else. “Contrary to the central prediction of the textbook model of the minimum wage,” the authors concluded, “we find no evidence that the rise in New Jersey’s minimum wage reduced employment at fast-food restaurants in the state.”
In their subsequent book, Myth and Measurement: The New Economics of the Minimum Wage, the authors went even further.
Under close scrutiny, the bulk of the empirical evidence on the employment effects of the minimum wage is shown to be consistent with our findings . . . which suggest that increases in the minimum wage have had, if anything, a small, positive effect on employment, rather than an adverse effect.7
But others immediately pushed back at that notion, and quite hard. Becker wrote that the Card and Krueger studies had “serious defects,” and other economists—including Donald Deere, Finis Welch, and Kevin Murphy—spelled them out in detail. A major flaw, it turned out, was the shortness of the sample periods used in the case studies, which didn’t allow enough time for the negative employment effects to show up. “Subsequent research has tended to confirm evidence of adverse longer-run effects of minimum wages on employment,” explained Neumark and Wascher. Similarly, a 1997 study from the union-backed Employment Policy Institute claimed that employment didn’t decline after a 1996 increase in the federal minimum wage. But later studies showed that EPI obtained that result by using just six months of data. Adding three more months of data would have reversed the conclusion:
The research on this issue suggests that studies claiming to find no minimum wage effect on employment should be discounted unless the evidence points to no effects in both the short run and the longer run. Indeed, this issue turns out to figure prominently in our assessment of the research literature, as the studies that fail to detect disemployment effects typically do not allow for a longer-run impact.8
The preponderance of evidence continues to show, as it has for decades, that minimum-wage laws tend to lead to overall job loss, which is bad enough. But the most insidious aspect of these policies is that the job loss is concentrated among the least-educated and least-skilled workers—the same group that minimum-wage advocates are trying to help. And blacks, it so happens, are overrepresented in this segment of the population. According to 2011 Census Bureau data, the median age for blacks in the United States is 31, versus 37.3 for all Americans. The black population is growing faster than the total population—it grew by 15 percent between 2000 and 2010, compared with growth of 9.7 percent among all groups over the same period—and the young black population is growing especially fast. The Census Bureau projects that the number of black persons under age 18 will grow by 5 percent between 2015 and 2025, “while white, non-Hispanic juveniles will decrease by 4%.”9
Blacks are also more likely than the general public to be living in poverty—28.1 percent versus 15.9 percent—and their median household income of $33,460 significantly trails the national median of $50,502.10 When it comes to educational achievement, the gap between blacks and whites is especially pronounced. A 2010 Schott Foundation for Public Education survey of all fifty states concluded that just 47 percent of black males complete high school. In some major cities like New York and Philadelphia, that rate is 20 percentage points lower. Blacks who do proceed to college are also much less likely than whites to graduate. A 2012 article in the Journal of Blacks in Higher Education, citing U.S. Department of Education figures, noted that among students who entered college in 2005 and earned their degree within six years the graduation rate was 60.2 percent for whites and 37.9 percent for blacks, a 22-point difference.11
Minimum-wage mandates don’t impact all workers equally, but they are especially harmful to those who are young and those who are living on the margins, where many blacks for various reasons find themselves. What such individuals want and need are job opportunities, which minimum-wage laws reduce by pricing people out of the labor market. These laws keep the large number of blacks who lack the right education and skills from being able to compete for jobs by offering to work for less money, get on-the-job experience, and ultimately increase their skills and pay. Alan Greenspan, the former chairman of the Federal Reserve, told a congressional hearing in 2001 that he would abolish the minimum wage if he could. “I’m not in favor of cutting anybody’s earnings or preventing them from rising,” he said, “but I am against them losing their jobs because of artificial government intervention, which is essentially what the minimum wage is.”12
The well-meaning liberals who defend these laws today ignore their racial impact, but it is undeniable that race was on the minds of those who initially championed a federal wage floor. States took the lead in establishing a minimum wage, with Massachusetts going first in 1912. Within a decade, fifteen states and the District of Columbia had minimum-wage laws on their books. This was the Progressive Era, and proponents said that workers were being exploited and needed more bargaining power. Employers disagreed, and challenged the laws in court on the grounds that they “violated employers’ constitutional rights to enter freely into contracts and deprived them of their private property (i.e., their profits) without due process,” wrote economists Neumark and Wascher.13 The Supreme Court agreed in a 1923 ruling against the District of Columbia’s minimum-wage law. And by the end of the decade similar laws in most other places had been declared unconstitutional, repealed, or otherwise neutered to avoid a legal challenge. They would reappear in 1933, when President Franklin D. Roosevelt signed the National Industrial Recovery Act, which called for workweeks of thirty-five to forty hours and minimum pay of $12 to $15 per week. The Supreme Court would find that unconstitutional as well in 1935, but not before an estimated half a million black workers lost their jobs due to the minimum-wage requirements.
“Blacks were major victims of the NRA [the National Recovery Administration]. The labor codes were drawn up by craft unions that excluded blacks as members and did everything they could to promote the interests of white workers and to subvert the interests of blacks, who were seen as competition,” wrote Jim Powell in FDR’s Folly. “Moreover, by sanctioning compulsory unionism, the NRA labor codes effectively excluded blacks from many jobs.”
There were an estimated 2.25 million union workers in 1933, and only about 2 percent were black. “Daily the problem of what to do about union labor or even about a chance to work, confronts the Negro workers of the country,” said the NAACP publication the Crisis in November 1934. “Union labor strategy seems to be to form a union in a given plant, strike to obtain the right to bargain with the employees as the sole representative of labor, and then to close the union to black workers, effectively cutting them off from employment.”14
But the Supreme Court would not have the last word. Three years later, at the urging of unions, Congress would establish a federal minimum wage with the Fair Labor Standards Act of 1938. As former Labor Department economist Morgan Reynolds explained,
During the confusion of the Great Depression, Congress supplied six major pieces of labor legislation favored by unionists: Davis-Bacon, Norris-La Guardia, National Industrial Recovery Act, National Labor Relations (Wagner) Act, Walsh-Healey, and Fair Labor Standards Act. Three of the bills (Davis-Bacon, Walsh-Healey, and Fair Labor) authorized direct federal regulation of wages, hours, and working conditions in various sectors of the economy.15
The Norris-La Guardia and Wagner acts would make it unlawful for an employer to discriminate against a worker for belonging to a union. Walsh-Healey allowed the secretary of labor to determine minimum-wage scales for nearly all government contractors, but a 1964 court decision rendered it inoperable on due process grounds. However, the Fair Labor Standards Act and the Davis-Bacon Act, which was passed in 1931, remain in force today and continue to destroy jobs for millions of people, many of them black. This is not an accident. It was the intent.
The express purpose of Davis-Bacon is to protect the wages and employment of union workers in the buildings trades. Under the law, which is really just a super-minimum wage for the construction industry, workers on federally funded construction projects must be paid wages at “prevailing” rates. “The methodology used to calculate this prevailing wage sets it close to union wage scales and well above average wages,” explained the Heritage Foundation in a 2007 report. “Davis-Bacon rates are typically 15 to 40 percent higher than average wages for the same job. In some cases, Davis-Bacon rates more than double the competitive wage.” In Nassau and Suffolk counties on New York’s Long Island, for example, Davis-Bacon required a minimum wage for brickmasons of $49.67 per hour, according to a 2008 Wall Street Journal editorial, “though the more common area wage for that work is $22.50.”
That the law discriminates against nonunion contractors and in the process inflates the cost of federal projects for taxpayers should be reason enough to scrap it, especially at a time when the government is running trillion-dollar deficits. But blacks have long had a separate legitimate gripe with Davis-Bacon because most black construction workers today, just like in the 1930s, aren’t unionized. “Democrats support these blanket Davis-Bacon policies even though minorities are still victimized by the wage law,” reported the Journal. “A 2001 study by economists Daniel Kessler of Stanford and Lawrence Katz of Harvard found that when states have repealed their Davis-Bacon laws, this ‘is associated with a decline in the union wage premium and an appreciable narrowing of the black/nonblack wage differential for construction workers.’”16 In fact, Davis-Bacon has been so effective at putting blacks out of work that 1930, the year before the law passed, was the last year that the black jobless rate was lower than the white rate.17
“While blacks were excluded from most major construction unions, they were nonetheless a formidable force in the construction industry,” noted economist Walter Williams of George Mason University, who has written extensively about blacks and labor law.
In 1930, the industry in the South provided more jobs to blacks than any other except agriculture and domestic services. In six Southern cities, blacks represented more than 80 percent of the unskilled labor force. . . . During this period, significant demographic changes were taking place. Blacks were increasingly migrating northward and establishing a foothold in the Northern construction workforce.18
We don’t need to guess what politicians were thinking when they moved to implement federal minimum-wage laws and Davis-Bacon statutes. We still have the transcripts of what was actually said by proponents. And it’s crystal clear that Congress passed these statutes to protect white union workers from competition from nonunion blacks. As with the minimum wage, states took the lead in implementing prevailing-wage laws. Kansas went first in 1891, and New York followed three years later. Both efforts were the brainchild of American Federation of Labor president Samuel Gompers. The push at the federal level started in 1927, when a contractor from Alabama won a bid to construct a Veteran’s Bureau hospital on Long Island and brought black workers from the South to complete the job. Because it was a federal contract, New York’s prevailing-wage law didn’t apply. Congressman Robert Bacon, who represented the district where the hospital was located, received complaints from constituents that contractors were bidding wages down and displacing local workers. The following year Bacon introduced federal legislation that would require contractors working on federal public works projects to comply with states’ prevailing-wage laws. It would ultimately be cosponsored by Senator James Davis of Pennsylvania and go through numerous iterations before finally becoming law in 1931.
During hearings, Representative William Upshaw of Georgia sympathized with Bacon, noting “the real problem that you are confronted with in any community with a superabundance or large aggregation of negro labor.” Missouri Representative John Cochran, another supporter, said that he had “received numerous complaints in recent months about Southern contractors employing low-paid colored mechanics getting work and bringing the employees from the South.” Alabama Representative Miles Allgood recounted the story of “a contractor from Alabama who went to New York with bootleg labor. This is a fact. That contractor has cheap colored labor that he transports, and he puts them in cabins, and it is labor of that sort that is in competition with white labor throughout the country.”
Nor did organized labor stand by idly while the national Davis-Bacon debate raged. “Testimony by union representatives reveals a definite racial element to their support,” wrote David Bernstein in Only One Place of Redress, a history of blacks and labor regulations.
William J. Spencer, secretary of the buildings-trades department of the American Federation of Labor, told the committee, “There are complaints from all hospitals of the Veteran’s Bureau against the condition of employment on these jobs. That is true whether the job is the States of Washington, Oregon, Oklahoma, or Florida. The same complaints come in. They are due to the fact that a contractor from Alabama may go to North Port and take a crew of negro workers and house them on the site of construction within a stockade and feed them and keep his organization intact thereby and work that job contrary to the existing practices in the city of New York.”19
The debates over the federal minimum wage are no less revealing. Since the Fair Labor Standards Act passed in 1938, Congress has amended it repeatedly to increase the legal minimum and extend its coverage. “The loss in jobs caused by the minimum wage is not an accidental byproduct of higher minimum wages. It is the consequence intended by those who most avidly support increasing minimum wages,” explained economist David Henderson in his 2002 book, The Joy of Freedom.
Northern unions and unionized firms, for example, have traditionally supported higher minimum wages to hobble their low-wage competition in the South. . . . Forty years ago, the politicians who pushed for the increased minimum wage did not hide their motives. Nor, in an era of state-sanctioned segregation, did they feel the need to hide their knowledge of who the intended victims of minimum-wage increases would be.
Here is Senator John F. Kennedy of Massachusetts, who supported increasing the minimum wage, addressing an NAACP official at a Senate hearing in 1957:
Of course, having on the market a rather large source of cheap labor depresses wages outside of that group, too—the wages of the white worker who has to compete. And when an employer can substitute a colored worker at a lower wage—and there are, as you pointed out, these hundreds of thousands looking for decent work—it affects the whole wage structure of an area, doesn’t it?
Roughly a decade later, in 1966, Senator Jacob Javits of New York would make a strikingly similar argument in favor of raising the federal minimum. “I point out to Senators from industrial states like my own that a minimum wage increase would also give industry in our states some measure of protection,” said Javits, “as we have too long suffered from the unfair competition based on substandard wages and other labor conditions in effect in certain areas of the country—primarily in the South.”20
Yes, sometimes a government policy has consequences that are not intended or anticipated. But minimum-wage laws are not an example of such. The issue today is not whether proponents of the minimum wage are motivated by the same racial animus that characterized earlier proponents. The issue is whether these wage mandates continue to harm blacks disproportionately, regardless of intent. For decades the black unemployment rate has tended to be about double that of whites, irrespective of the economic climate. At the end of 2012 jobless rates were 6.3 percent for whites, 9.8 percent for Hispanics, and 14 percent for blacks. Even during periods of strong economic growth such as the 1990s the labor participation rate for black men between 16 and 24 fell.
Black leaders today continue to cite racism as a major cause of black unemployment (and every other socioeconomic problem that blacks face). Yet in 1930, when racial discrimination was infinitely more open and rampant, the black unemployment rate was lower than that of whites. And until around 1950 the unemployment rate for young black men was much lower than today, and similar to whites in the same age group. “Black 16-year-olds and 17-year-olds had a slightly lower unemployment rate than white youngsters of the same age in 1948 and only slightly higher unemployment rates than their white peers in 1949,” wrote Stanford economist Thomas Sowell. How come? Sowell offered one plausible explanation:
This was just before the minimum wage law was amended in 1950 to catch up with the inflation of the 1940s which had, for all practical purposes, repealed the minimum wage law, since inflated wages for even unskilled labor were usually well above the minimum wage level specified when the Fair Labor Standards Act was passed in 1938.
The key role of the federal minimum wage laws can be seen in the fact that black teenage unemployment, even in the recession year of 1949, was a fraction of what it would become in even prosperous later years, after the series of minimum wage escalations that began in 1950.21
So while racism may not drive today’s proponents of minimum-wage laws, the effects of these laws continue to disproportionately harm the job opportunities of blacks in general, and young blacks in particular. Nevertheless black politicians, civil rights groups, and their liberal allies continue to ignore the empirical data and back these disastrous policies. In May of 2011 the Chicago Urban League, a civil rights group that supports minimum-wage laws, released a study of youth employment prepared by Northeastern University’s Center for Labor Market Studies. The study found that despite overall job growth in the previous year, “the nation’s teenagers did not manage to capture any of the increase in employment.” Indeed, 2010 was “the fifth consecutive year in which a new historical low for teen employment was reached,” and the center predicted that “only one of every four teens (16–19 years old) would be employed during the summer months of June, July, and August,” which would represent the “lowest ever or second lowest ever summer employment rate for teens in post-WWII history.” When the study was released, the national unemployment rate was 9.1 percent, but it was 24.2 percent for teens, and 40.7 percent for black teens. In Chicago the situation was much worse, said the Urban League, noting that “90 percent [of black teens] are jobless, including 93 of every 100 teens from families with incomes under $40,000; upper-middle-income whites were nearly four times as likely to hold a job, the data show.”
The report went on to lament that “this national disaster has not received any substantive attention from the nation’s economic policymakers of either political party.” But that wasn’t quite true. A separate study, released around the same time by labor economists William Even of Miami University in Ohio and David Macpherson of Trinity University in Texas, detailed how recent federal minimum-wage hikes had in fact contributed to this “national disaster.” Congress had raised the federal minimum by 41 percent, to $7.25 an hour, in three stages between 2007 and 2009. The problem was not indifference, but that policy makers had made matters worse.
The Even and Macpherson study found that for white males ages 16 to 24, each 10 percent increase in a federal or state minimum wage had decreased employment by 2.5 percent. For Hispanic males the figure was 1.2 percent. “But among black males in this group, each 10% increase in the minimum wage has decreased employment by 6.5%.” The effect on black workers was so pronounced, wrote the authors, that “employment losses for 16-to-24-year-old black males between 2007 and 2010 could have been nearly 50% lower had the federal and state minimum wages remained at the January 2007 level.”
And as you dug into the numbers, the story got even worse. Not all states were impacted equally by the federal minimum-wage increases, because some already mandated a minimum wage above the federal requirement. But in the twenty-one states that were fully affected, 13,200 young blacks lost their jobs as a direct result of the recession, versus 18,500 who lost their jobs as a result of the minimum-wage mandates. “In other words,” wrote Even and Macpherson, “the consequences of the minimum wage for this subgroup were more harmful than the consequences of the recession.”22
The irony is that the same liberals who complain about the dearth of employment opportunities in the ghetto—from President Obama to the Congressional Black Caucus to black mayors and MSNBC talking heads—are among the loudest defenders of the minimum wage. In his first State of the Union address after being reelected, Obama called for increasing the federal minimum by 24 percent, from $7.25 to $9 an hour, and indexing it to inflation. At the time of the speech in February 2013, unemployment was 7.9 percent overall, but 13.8 percent among blacks (versus 7 percent among whites), 14.5 percent among black men (versus 7.2 percent among white men), and 37.8 percent among black teens (versus 20.8 percent among white teens).
In separate interviews, Professors Macpherson and Even told me that several factors contribute to the racial disparities resulting from minimum-wage hikes. “One problem is that I think blacks tend to have, on average, inferior schooling,” Macpherson said. “Also, the effects of the minimum wage differ by industry, and blacks tend to be heavily concentrated in, for example, eating and drinking establishments, where it’s easier to substitute capital for labor.” Geography also plays a role, said Even. “Fifty-seven percent of blacks [between 16 and 24] are in the South. Only a third of whites are. And only a third of Hispanics are.” He added: “The South generally has had lower wages than other parts of the country. And so a minimum of $7.25 is likely to be more binding, or affect more people in the South, than it will in other regions. So when you have these federal policies where one size fits all, and a disproportionate share of blacks live in areas where the minimum wage hits hardest, this could be part of the explanation of what’s going on.”
The reality is that as the minimum wage has risen, the gap between the overall jobless rate and the jobless rate of young people has widened. This holds true at the federal and state level. “At least 10 states have raised their minimum wages above the federal level in the last decade, largely in response to union lobbying,” reported the Wall Street Journal in 2009. “Four states with among the highest wage rates are California, Massachusetts, Michigan and New York. Studies have shown in each case that their wage policies killed jobs for teens.” This phenomenon extends beyond U.S. borders, by the way. A study of seventeen other countries found a “highly negative association between higher minimum wages and youth employment rates,” said the Journal. “It also concluded that having a starter wage, well below the minimum, counteracts much of this negative jobs impact.”
Minimum-wage defenders don’t have much in the way of hard data to refute the disemployment effects of these policies. Instead, they argue that minimum-wage laws alleviate poverty, which is the greater good, in their view. Here’s how Obama put it in his 2013 State of the Union address:
We know our economy is stronger when we reward an honest day’s work with honest wages. But today, a full-time worker making the minimum wage earns $14,500 a year. Even with the tax relief we put in place, a family with two kids that earns the minimum wage still lives below the poverty line. That’s wrong. That’s why, since the last time this Congress raised the minimum wage, nineteen states have chosen to bump theirs even higher.
Tonight, let’s declare that in the wealthiest nation on Earth, no one who works full-time should have to live in poverty, and raise the federal minimum wage to $9.00 an hour. . . . This single step would raise the incomes of millions of working families. It could mean the difference between groceries or the food bank; rent or eviction; scraping by or finally getting ahead. For businesses across the country, it would mean customers with more money in their pockets.
The belief that minimum-wage laws are an effective antipoverty tool has a long pedigree on the political left. “Without question,” said President Roosevelt in 1938 after Congress passed the federal minimum, “it starts us toward a better standard of living and increases purchasing power to buy the products of farm and factory.” Sixty years later President Clinton would say at a press conference that upping the minimum wage would “raise the living standards of twelve million hard-working Americans.” Senator Ted Kennedy would declare that “the minimum wage was one of the first—and is still one of the best—antipoverty programs we have.” And Clinton labor secretary Robert Reich told Congress in 1995 that the federal minimum was “just not enough to support a family” and that “a moderate increase in the minimum wage is one of the few steps that government can take to improve the living standards of low-income workers.”23 After the minimum wage rose in 2009, Obama labor secretary Hilda Solis announced that millions of Americans were now “a step closer to making ends meet every month.”
The minimum wage has increased during Democratic and Republican administrations alike, though Republicans have tended to approve hikes reluctantly, and usually in return for something else to help offset the damage, like tax breaks for small businesses. And it’s true that a minimum-wage hike will improve the lot of those making the minimum, provided they keep their jobs and continue to work the same number of hours, neither of which should be assumed. Remember that minimum wages deal with wages, not employment. The government can mandate that someone be paid at a level above his productivity, but it can’t (yet) mandate that he be hired in the first place, or that he keep his job after the cost of employing him rises. So some people will lose their job or never be hired, and others will get a raise. But on balance, are low-skill workers better off?
You can begin to answer that question by looking at who’s earning the minimum wage. And when you do, you realize how dishonest it is when proponents depict the typical minimum-wage beneficiary as someone who is poor or a household head. In reality the typical minimum-wage earner is neither. “It’s always the low-income families that policy makers say they want to help, and with good reason,” economist David Neumark told me in an interview. “But my reading of the evidence”—and he has studied as much of the literature as anyone—“is that there is zero compelling evidence that minimum-wage increases have beneficial distributional effects, that they’re helping people at the bottom. And there’s some hint that there are some negative effects.” Neumark said that “roughly speaking, over the past twenty years a third of minimum-wage workers are in families in the top half of the income distribution. The median income for a family of four is between fifty and sixty thousand dollars. Minimum-wage workers are not in poor families. They’re not even in families that are twice the poverty line. If you’re 30 and earning minimum wage, you’re probably in a poor family. But if you’re 17 and earning minimum wage, you’re more likely not to be in a poor family, because 17-year-olds in poor families probably aren’t working.” Thanks in part to the minimum wage.
“One of the reasons the minimum wage really misses the mark and doesn’t do much for poor people is that it targets the poor really badly,” said Neumark. “The only targeting you’re doing with the minimum wage is targeting people based on wages. And the mapping between a low-wage worker and a low-income family is very fuzzy and very loose.” He was echoing a sentiment expressed by Nobel economist George Stigler in 1946. “The connection between hourly wages and the standard of living of the family is remote and fuzzy,” wrote Stigler. “Unless the minimum wage varies with the amount of employment, number of earners, nonwage income, family size, and many other factors, it will be an inept device for combating poverty even for those who succeed in retaining employment.”
Around 5 percent of hourly workers in the United States earn the minimum wage, according to the 2012 data from the Bureau of Labor Statistics and the Census Bureau. Most are 25 or younger and 69 percent of them work part-time. They are not their families’ sole breadwinner; they come from households that don’t depend on their earnings. Thus, the beneficiary of a minimum-wage increase is more likely to be a teenager in a tony suburb than a single mom in the ghetto. And hiking the minimum wage will diminish the job prospects for that single mom. A 1995 study concluded that mothers in states that raised the minimum wage remained on public assistance an average of 44 percent longer than their peers in states where the minimum did not rise.
If anything, minimum-wage policies have become less and less effective over time as an antipoverty tool, according to Cornell University economists Richard Burkhauser and Joseph Sabia. In 1939, the year the federal minimum was established, 94 percent of household heads who were low-wage workers were in poor families, along with 85 percent of all low-wage workers. By 1969 those figures were 45 percent and 23 percent, respectively. By 2003 they were 11 percent and 9 percent.
“We find no evidence that minimum wage increases between 2003 and 2007 lowered state poverty rates. Moreover, we find that the newly proposed federal minimum wage increase from $7.25 to $9.50 per hour, like the last increase from $5.15 to $7.25 per hour, is not well targeted to the working poor,” wrote Burkhauser and Sabia in a 2010 paper.
Only 11.3% of workers who will gain from an increase in the federal minimum wage to $9.50 per hour live in poor households, an even smaller share than was the case with the last federal minimum wage increase (15.8%). Of those who will gain, 63.2% are second or third earners living in households with incomes twice the poverty line, and 42.3% live in households with incomes three times the poverty line, well above $50,233, the income of the median household in 2007.
Liberals bleat on about raising the federal floor to help the working poor, but most poor people already make more than the minimum, and most people who earn the minimum wage aren’t poor.
With all due respect to the late Ted Kennedy, the best antipoverty program is not the minimum wage. Rather, it’s a job, even if it’s an entry-level one. Most poor families don’t have any workers. Raising the minimum wage does nothing for them, and to the extent that it reduces their employment opportunities, it’s a net negative. Reducing the number of entry-level jobs keeps people poor by limiting their ability to enter or remain in the workforce, where they have the opportunity to obtain the skills necessary to increase their productivity and pay, and ultimately improve their lives.
Unions support minimum wages not because they want to help the working poor but because they want to protect their members, who already have jobs. “Just as businesses seek to have government impose tariffs on imported goods that compete with their products, so labor unions use minimum wage laws as tariffs to force up the price of non-union labor that competes with their members for jobs,” wrote Thomas Sowell in Basic Economics.24 What’s painful is watching black leaders align themselves with unions that are working against the interests of low-income blacks who are out of work. Walmart, for example, has a history of locating its stores in less affluent neighborhoods and providing those residents with not only jobs but low-cost goods and services. The political left claims to care so much more than conservatives about the well-being of the poor. But labor unions and Democratic politicians from Obama on down would rather have these ghetto residents stay poor and jobless if the alternative is allowing them to work at a Walmart that won’t bow to union demands. In 2012, after Walmart announced that it had dropped plans to construct a big-box store in an economically depressed section of New York City, labor leaders and liberal activists cheered. “Walmart’s withdrawal,” said Stephanie Yazgi of Walmart Free NYC, “shows that when New Yorkers join arms, even the world’s richest retailer is no match for them.” It also showed that the actual needs of the underprivileged take a back seat to the left’s political agenda.