In my research on minimum wages and the effects on rates of employment, I came across several powerful passages in Basic Economics by Thomas Sowell. This is one of them:
“Before minimum wage laws were instituted in the 1930s, the black unemployment rate was slightly lower than the white unemployment rate in 1930. But then followed the Davis-Bacon Act of 1931, the National Industrial Recovery Act of 1933 and the Fair Labour Standards Act of 1938 – all of which imposed government-mandated minimum wages, either on a particular sector or more broadly….The inflation of the 1940s largely nullified the effect of the Fair Labour Standards Act, until it was amended in 1950 to raise minimum wages to a level that would actually have some effect on current wages. By 1954, black unemployment rates were double those of whites and have continued to be at that level or higher. Those particularly hard hit by the resulting unemployment have been black teenage males.”
Thomas Sowell Basic Economics Basic Books (2011) p250.
He asserts elsewhere that minimum wages mean that those who can only command lower wages are not able to find work. This affects particularly blacks (in America and almost certainly in Britain), younger people and those of low capabilities.
Of course it is particularly damaging when someone belongs to two or more of these groups – young and black, for example. This has particular resonance in Britain where the rate of young black unemployment has apparently reached 55.9%. The overall rate of black unemployment is 22%.
These are extraordinary figures which deserve to be much better known. It seems to verge on the immoral that in this situation that the minimum wage is not significantly reduced or abolished. I think I heard on the radio this morning that a government spokesman, when criticised for the smallness of the increase in the minimum wage announced today said something like “it strikes a balance between wages and employment”. There is no balance. There is a creation of unemployment which creates misery and alienation for the individual and danger and expense for society at large.
One thing that can make a minimum wage seem desirable is if employers can get away with paying lower than the minimum wage and relying on government in-work benefits to bring up the take-home income of the worker to very near what it would have been if the pay were higher. This can be a tricky one but the first thing is to make sure that no low-paid person ever pays income tax. On this basis, in-work benefits can be smaller than otherwise and thus less susceptible to this misuse.