The Minimum Wage Won’t Help Those in Poverty



March 25, 2021

By Jason O’Day

 

In the early 1980s, Ronald Reagan advocated abolishing the minimum wage for teenagers to provide them a better shot at entry level jobs. The goal was admirable, but it would be unfair to pay teens less for doing the same things as equally low skilled adult coworkers.

Yet, Reagan was onto something. Empirical studies show a statistically significant correlation between raising the minimum wage and higher youth unemployment rates. The minimum wage is essentially an artificial, redistributive tax on companies that employ low skilled individuals. Businesses adjust to minimum wage hikes by raising prices, cutting hours, slashing benefits, or narrowing profit margins. Most small businesses haven’t been raking in fat profits lately, especially those in blue states fighting to survive arbitrary coronavirus lockdowns. One quarter of all workers in 47 states make less than $15 per hour. So a recent report from the CBO projecting a loss of 1.3 million jobs under the Democrat proposal to raise the minimum wage should surprise no one.

Thomas Sowell,, once noted, “Before federal minimum wage laws were instituted in the 1930s, the black unemployment rate was slightly lower than the white unemployment rate in 1930.” In Basic Economics, he explained the scarcity of hotel bell boys and baggage handlers in Western Europe, which has mostly high minimum wage rates throughout. Elderly guests forced to struggle lifting their luggage suffer, as do the young and low skilled men who missed out on a decent job opportunity. The only people who benefit are the special interests who push for higher labor price floors (typically corrupt union bosses) and self-aggrandizing politicians who pat each other on the back, oblivious to or uninterested in the unemployment they’ve caused.

Various government entities subsidize the poor via food stamps, WIC, Section 8 housing, etc. State and federal taxpayers provide healthcare to the less fortunate with Medicaid, and CHIP insurance for their children. Myriad other government programs and more importantly, charities, exist to help those who are struggling. Utah state law protects eligible residents from having certain vital utilities shut off between November 15th and March 15th. Most other states have similar protections.

The more earnest arguments I’ve read advocating a higher minimum wage point to a growing wealth gap between CEOs and low wage workers, greedy stock buyback schemes, and low wage gigs with dead-ends. Those who resent the wealthy fail to understand the complexities of modern economics.

As George Reisman explained a decade ago in response to the economic illiteracy of the Occupy Wall Street movement, virtually everyone benefits from Exxon’s oil wells, Ford’s manufacturing plants, and Verizon’s cell phone towers — especially a Burger King fry cook who buys gas for his Ford Focus and makes calls on his iPhone. That list alone entails billions, if not hundreds of billions of dollars in physical capital. Most of the stockholders who own that capital are extravagantly rich, and there’s nothing wrong with that. CEOs deserve massive salaries, they make sweeping decisions every day that impact the safety and quality of the products and services we consume.

Regardless of the wage rate, there is no such thing as a dead-end job. People derive a sense of meaning and social cohesion from their occupations. Millions of those positions could not exist at $15 an hour. No government check could ever replace the deep feelings of accomplishment and belonging resulting from a hard day’s work. I’ve worked alongside dishwashers and janitors who seemed much happier and more fulfilled than the generously compensated salaried managers they reported to.

Simply mandating higher wage rates would exacerbate rather than solve poverty, which is driven by a host of complicated societal issues.. Poverty is deeper than just money, and spiking unemployment won’t alleviate it.

Reagan was right that the best social program is a job.