Tuesday, December 22, 2009

racial implications of the minimum wage

Minimum wages have been used by unions in our country and in South Africa to keep African-Americans out of the labor force. While the intent is not always racist, the implications certainly are....

From Walter Williams at LewRockwell.com, reiterating a WSJ article by Sarah Murray, "Black Youths Miss Out on Good Job News"...

I've grown somewhat weary writing about the devastating effects of minimum wage laws...Today's overall teenage (16-19) unemployment rate, at 25%, is the highest since World War II. Black teenage unemployment, at 50%, is also the highest since World War II.

How do you think the Reverends Jackson and Sharpton would explain the unemployment difference between black and white teens? You can bet the rent money they would say: It's racial discrimination. Let's investigate. Was racial discrimination in 1948 greater or less than racial discrimination today? In 1948, the unemployment rate for white 16-17 year olds was 10.2 percent while that for blacks was 9.4 percent. Among white 18-19 year-olds, unemployment was 9.4 percent and for blacks it was 10.5 percent. During that period, not only were the unemployment rates similar, black teenagers were either equally as active as whites in the labor force or more so....

So what might help to explain? The major villain is the minimum wage law. With each increase in the minimum wage, black teen unemployment rose relative to whites and teen unemployment rose relative to adult. Why? Put yourself in the place of an employer and ask: If I must pay to whomever I hire $7.25 an hour, plus mandated fringes such as Social Security, vacation, health insurance, unemployment insurance, does it pay me to hire a worker who is so unfortunate so as to have a skill level that allows him to contribute only $5 worth of value an hour? Most employers would view hiring such a person a losing economic proposition. Therefore, the primary effect of a minimum wage law is that of discrimination against the employment of low-skilled workers.

Teenagers tend to be low skilled....Black teens are far more likely to come from broken homes and attend some of the worst schools in the nation. Therefore, a law that discriminates against the employment of low-skilled workers will have a greater impact on black workers. Moreover, the minimum wage subsidizes racial discrimination. After all, if you must pay $7.25 an hour to whomever you hire, you might as well hire people you like the most, even if they are of identical skill...


At December 26, 2009 at 1:45 PM , Blogger William Lang said...

I was curious as to the relationship of the minimum wage to black unemployment relative to unemployment. I managed to find some data on the web for unemployment, black unemployment from 1972 on, CPI through 2008, and the federal minimum wage. From this, I computed federal minimum wage in constant 2008 dollars (by dividing the minimum wage by the CPI). I then did some simple analysis.

Here is what I found: Black unemployment is highly correlated with unemployment (nearly 97% correlation). This suggests that it might be difficult to see the effect of changes in the minimum wage in black unemployment versus unemployment. But I computed the ratio of black unemployment and unemployment. This ratio turns out to be confined to a fairly narrow range from about 1.8 to 2.2, since 1972. I plotted this against constant-dollar minimum wage:
The resulting scatter plot appears to show that black unemployment was low relative to overall unemployment, and the minimum wage was relatively low, in the 2000s. It also appears to show that black unemployment relative to unemployment was high, and the minimum wage was high, in the late 1970s. But it appears to show that the minimum wage was high, and black unemployment relative to unemployment was low, in the early to mid 1970s. So based on this graph, it's hard to see a relationship between black unemployment and unemployment, as a function of the federal minimum wage. Indeed, a linear regression of the ratio of black unemployment to unemployment, versus constant-dollar minimum wage, yields a p-value of 0.73. There is no relationship.

Now I must acknowledge limitations of this analysis. First, it only considers black unemployment, not black youth unemployment—I didn't find data for the latter. Second, it uses the federal minimum wage but many states set higher minimum wages. Third, it only goes back to 1972; I couldn't find data for earlier years. And fourth, I am not an economist! But based on this analysis, I would find it difficult to reach the conclusion that a high minimum wage disproportionately hurts blacks. This of course says nothing about whether the minimum wage hurts unskilled workers in general (particularly when there's a surplus of such workers due to high immigration rates). But lowering the minimum wage would certainly immediately adversely affect many minority workers who only earn minimum wage.

At December 26, 2009 at 5:26 PM , Blogger Eric Schansberg said...

Good for you; you put in a lot of work! I won't be in a position to add to this, substantively, for a week or so.

I appreciate your humility on this, but just because you're not an economist, doesn't mean you can't do good econmic analysis!

The biggest thing I'd want to check is your first point: distinguishing between unemployment-- and then by race and age. Using overall employment data seems noisy. The second thing is the inclusion of 1950-1960s data. Presumably, Williams is citing the provocative early-1950s numbers because they make the biggest splash.


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