Minimum Wage Harms the Poor
ALTHOUGH no amount of frustration with "the system" can justify widespread violence, inner-city residents do suffer from a dearth of opportunity. The answer to some activists, like Jesse Jackson, is therefore more federal intervention and spending. They seem to think that "cuts" (actually reductions in the rate of growth) in social programs by the Reagan and Bush administrations are the chief culprits in the latest outburst of urban warfare.
Yet 30 years after the inauguration of the Great Society, it should be obvious that Washington cannot solve deep-seated social problems with money. To the contrary, ill-considered government action bears much of the blame for the state of the inner city. Welfare programs impede family formation and stability; building codes, rent control, and zoning discourage affordable housing; unaccountable and uncompetitive public-school systems degrade the quality of education; the drug war empowers criminal gangs; and licensing, the minimum wage, and other business regulations restrict economic opportunity.
The minimum wage illustrates the amount of harm caused by well-intentioned public officials. Long promoted as an antipoverty program, government wage-setting has broken the bottom rungs of the ladder of economic opportunity, making it much harder for the disadvantaged to escape poverty. Placing a wage floor on employment means that the least educated, experienced, and skilled workers - and thus least productive - will not be hired. Some companies just try to do more with less. Others make their customers
work, as through self-service gas stations and salad bars. Or businesses may automate, installing mechanical bank tellers, elevators, and the like.
Although economists disagree over exactly how many jobs are lost due to the minimum wage, they all agree that it reduces employment. The federal Minimum Wage Study Commission estimated that every 10 percent wage hike cuts youth job opportunities by between 1 and 2.5 percent. Other studies suggest that an equal number of young people stop looking for work.
Yet in 1989 Congress voted to raise the minimum wage in stages, up to $4.25 last April. Many states compound the problem by imposing their own, higher minimums. New Jersey's wage floor jumped to $5.05 on April 1. The District of Columbia narrowly averted disaster last winter when the Council set aside the Wage and Hour Board's proposed minimum of $7.25. Even many workers who were supposed to benefit realized that such a hike would cost them their jobs as their employers closed, downsized, or fled to the suburbs.
UPPORTERS of a higher minimum wage argue that it is a "moral" issue, that no one can support a family on $8,840 a year. In fact, more than four-fifths of those receiving the minimum wage are not poor, three-fourths are not heads of households, and only one-third are working full-time. Nor is it morally ennobling to put some people out of work in order to raise the pay of others. The solution to people earning low wages is not to penalize the companies most interested in hiring them. Rather, we should enc ourage firms to provide more "first" jobs that will help people move up the employment ladder.
To enable inner-city people to take advantage of such opportunities, government does need to stop harming its most vulnerable citizens. Inner-city residents need relief not just from rules, such as the minimum wage, that rob them of legal employment opportunities, but also from a public educational system that does not educate and a welfare system that discourages independence.
The perverse incentive structure of welfare is evident from a new study of California's experience with the minimum wage. According to economist Carlos Bonilla, last year's hike to $4.25 has encouraged heads of households to switch from full-time to part-time work because the increase was more than swallowed up by taxes and lost welfare benefits. For a single parent with one child, reports Mr. Bonilla, dropping from 40 to 20 hours of work a week increases the family's annual income by almost $700.
At a time when many activists are calling on the government to do more to help the poor, policymakers must recognize how government is now harming society's most disadvantaged members. Before pushing grand new initiatives to do good, reformers should stop government from doing bad. They could start by eliminating the minimum wage, which has kept so many angry inner-city teens unemployed.