The Economics of Hope

California is moving to raise their minimum wage to $15/hr.  New York wants a similar law.  Among economists, the results of the legislation is generally expected to be negative (for example, the research of UC Berkeley economist Michael Reich, who fully backs the state’s plan to implement a higher minimum wage, found that the hike will both on net cost jobs and reduce the size of the economy). Economists agree universally that the minimum wage has costs associated with it; none of us believe in a “free lunch.”

But mainly we’re talking about the “seen” costs of minimum wage.  The unseen costs are considerably higher, and they fall disproportionately among minorities, immigrants, and low-skilled workers.  They are not ones benefiting from the hike; they are the ones paying for it.

Some evidence: In 2011, a paper was released by the Employment Policies Institute that found that:

[E]ach 10 percent increase in a state or federal minimum wage has decreased employment by 2.5 percent…But among black males in this group, each 10 percent increase in the minimum wage decreased employment by 6.5 percent.

The effect is similar for hours worked: each 10 percent increase reduces hours worked by 3 percent among white males, 1.7 percent for Hispanic males, and 6.6 percent for black males.

Prominent economist Thomas Sowell found that:

The last year when the black unemployment rate was lower than the white unemployment rate was 1930, the last year before there was a federal minimum-wage law.

The annual unemployment rate for black teenagers has never been less than 20 percent in the past 50 years and has ranged as high as over 50 percent.

Incidentally, the black-white gap in unemployment rates for 16- and 17-year-olds was virtually nonexistent back in 1948. But the black teenage unemployment rate has been more than double that for white teenagers for every year since 1971.

Another economist, this one from George Mason University, Walter Williams has compiled excellent information on the effects of minimum wage on minorities.

But it’s not just in the US.  Alex Tarabok, GMU economist, had an interesting blog post discussing labor market rigidity in Europe and Muslim violence.

These items of legislation which, prima facie, are supposed to help these workers actually harm them.  The legislation harms minorities by pricing them out of the labor market and create a class of essentially unemployable workers (which, I hasten to remind you dear readers, was the original goal of minimum wage).  But worst of all, the legislation harms them by taking away hope.

For me, minimum wage is among the most evil of all legislation for the reason that it eliminates hope for those who need it most.  To a young black man trapped by poverty, even a minimum wage job can be the key to freeing himself from those binds.  But if he is told that he cannot be hired because he cannot be afforded thanks to this legislation, that is crushing.  He has no way, legally, to better himself, to gain the skills needed to earn more money.  He has, essentially, been cast back into that pit of poverty and told there is no way for him to escape.  Is it any mystery, then, that black and minority youth must turn to crime?

In the case of Europe, the labor market rigidity prevents immigrants from assimilating into European culture.  Is it any mystery, then, that the youth feel disaffected when a full 25% can’t get a job?  Is it any mystery, then, that the ghettos that exist in Europe have become hotbeds of radicalization?

I’d like to end what has become a much longer post than I anticipated with a quote from Captain America:

When I was a kid, it was my father’s people, the Irish, who were looked down upon. Called filthy foreigners. Discriminated against. Is that the xenophobic America you want? All religions, all nationalities, we all want the same thing. To see our children grow strong. To provide safety for our families. To live in quiet times.

The hope that he describes here, the hopes of people longing to come to America and those already here (in short, the American Dream) is what drives people to work hard, to cross dangerous oceans, to leave their families and belongings behind and start anew in a strange place.  But when that hope is crushed, when you are essentially told that you can never be employable, then it can destroy a man’s spirit and have him, in his despair, turn to bad means to survive.

If we want to help minorities escape poverty and violence, then we must put away these grandiose gestures of “kindness that can kill” that sound nice but perpetuate the problem, and begin doing things that no one will get recognized for, but will actually solve the problems.  That will never happen as long as politics is given as the solution to all that ails.  After all, actions that are done away from glamour, rather than “announced with trumpets in the streets as the hypocrites do” are far more likely to be effective.

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