One of the distinguishing characteristics of leftists (i.e., liberals, progressives, or socialists) is their lack of understanding when it comes to sound economic principles. A good example of this phenomenon is an op-ed in yesterday’s New York Times entitled “To Reduce Racial Inequality, Raise the Minimum Wage” by Ellora Herenoncourt and Claire Montialoux, who teach at the University of California, Berkeley.
In their article, the authors call for an increase in the minimum wage to $15 an hour. They say that this will help the “Black working class” by increasing their income and by reducing income disparity between whites and blacks.
With all due respect, that’s just pure nonsense. The best way to help blacks is by abolishing, not raising, the minimum wage.
First of all, notice something important: Herenoncourt and Montialoux do not call for an increase in the minimum wage to $100 an hour. Why not? If $15 an hour would help blacks and reduce income disparity, wouldn’t $100 an hour help blacks and reduce income disparity even more? Why are these two professors so mean as to want to limit the well-being of blacks to $15 an hour when they could be calling for a minimum wage of $100 an hour?
The reason is that they themselves understand employers simply cannot afford to pay $100 an hour to their workers. They know that if they do so, their losses will exceed their income and they will soon go out of business. The workers are simply not worth $100 an hour to them.
Does that mean that employers are mean, greedy, selfish, malevolent people? Of course not. Like everyone else, they are simply trying to survive and prosper. To do that, they have to ensure that income exceeds expenses. To stay in business, they have to make a profit.
Every time an employer hires someone — or decides to keep someone on his payroll — he has to make a subjective decision as to the prospective value of that worker to the firm. Let’s say that a black teenager is asking for a job and that the employer subjectively decides that the teenager is worth $10 an hour to him. In other words, if he hires him at $10, he makes a profit. If he has to pay more than $10, he loses money.
By the same token, the worker goes through the same type of subjective valuation process. He isn’t forced to work for any employer. He is choosing between various alternatives. If he feels that he’s worth more than $10 an hour and that he will be able to find an employer who will pay him $11 an hour, he’ll pass on the $10 an hour offer and keep looking.
The problem with the minimum wage is that it potentially forces employers to pay a higher wage than what they themselves are willing to pay. When that happens, there is a tragic result: The worker doesn’t get hired or, if he already is hired, he gets fired.
Let’s assume, for example, that a black teenager approaches a white employer and asks for a job. They both agree on an hourly rate of $10. The government comes along and says, “We want to help blacks with a minimum wage of $100, which will also reduce income disparity between whites and blacks.”
What happens then? The kid doesn’t get employed. Even though both employer and employee were willing to enter into a labor contract for $10 an hour, the employer is unwilling to pay the $100 per hour set by the government.
Again, leftists are able to grasp that point when it comes to $100 an hour. What they simply cannot grasp is that the same principles applies at $15 an hour or at whatever wage rate the government artificially sets. All those people whose labor is valued at less than the artificially established minimum wage will not get employed or will be laid off.
That’s why there has been a permanent, chronically high unemployment rate for black teenagers for years. An increase in the minimum wage will only aggravate their situation. The best thing that could ever happen to them and everyone else is for the minimum wage to be abolished.