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How Minimum Wage Laws Promote Racial Discrimination

Written by Gary North on July 18, 2014

It was over 40 years ago that I first heard Walter Williams speak at a conference. Anyway, I think it was over 40 years ago. It could not have been less.

He and I were on what speakers call the rubber-chicken circuit as early as 1974. We spoke to high school teachers in a program sponsored by the intercollegiate Studies Institute, “The Role of Business in Society,” or ROBIS. As I recall, I had heard him speak before we were on the summer lecture circuit.

I remember very clearly his main point at one of his lectures. He said that minimum-wage legislation discriminates against teenage black males. This has been known by economists since at least the mid-1950’s. The statistical evidence on this was overwhelming. But high school teachers had not heard this.

What made Williams’ speech memorable was the fact that he clarified the reason why the minimum-wage legislation was detrimental to teenage black males. He made the observation, which nobody challenged: the teenage black males are considered undesirables by the general population. In other words, they are discriminated against. They suffer from the stereotypes attached to their particular group.

He asked the obvious question: “How does someone who is part of a group that is discriminated against find a way to prove to somebody doing the discriminating that his assessment is incorrect?” It was really this question: “How do undesirables break through the discrimination against them?”

He made what was considered an obvious point from the point of view of an economist, but which was not obvious to his audience. He said that the person who is discriminated against needs to have a competitive edge that will enable him to compete effectively with members of groups that are not discriminated against. The free market offers such a tool, he said: wage competition. Specifically in the case of competition among potential workers who want to be employed, the most effective competitive edge available is the offer to work for less money per hour. This offer is taken seriously by employers.

Minimum-wage legislation makes it illegal for employers to take advantage of such offers. This removes the most effective single competitive strategy that is available to a person who is considered undesirable because of his membership in a particular group that is widely considered undesirable. This economic analysis applies to all sorts of groups.

(For the rest of my article, click the link.)

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18 thoughts on “How Minimum Wage Laws Promote Racial Discrimination

  1. ken1lutheran says:

    The question is whether being a black male teenager is still such a stigmatized status that one has to offer his services cheaper. Another argument against raising the minimum wage has been that very few of the minimum-wage positions were the kind of work that people do other than a first job while young. This isn't that labor market. The auto worker and steelworker sorts of positions that adults supporting a family used to do aren't there any more. There are people trying to support their families on minimum wage–and failing. An increase in the minimum wage to $15 as some are demanding is absurd; most of the small businesses would either close their doors or cut their staffing drastically. But an increase to $10 an hour seems to be a reasonable move, especially in this day of shortened hours.

  2. Random Person says:

    In my field, when I found myself unemployed and couldn't find a job, I went directly to the clientele my old company worked with, and offered them my services at a huge discount, because I understand what Dr. North is saying here, that the single most effective way to get the attention of clients/employers is to offer your services for less $$$ than anyone else. It worked for me, now I have steady work from these clients and I've raised my prices now that they see the kind of work I do for them is better than my competitors.

  3. Well hey, let's just get rid of the minimum wage, then we can have companies discriminate against everybody instead!

    I don't know if you realize this, Gary, but even the minimum wage isn't enough to actually live on in the US. Removing it would cause companies to offer employees even LESS than the minimum wage. Because there are still people out there desperate for a job – ANY job – those people would take them, setting a new standard for labor pricing. Housing costs would continue as they are, and we'd have more people kicked out of their homes, creating a downward spiral of ever-cheapening labor and homelessness. Our country cannot survive with no minimum wage.

    We'd end up like China. But hey, that's what big businesses want: zero-cost labor for a maximized profit margin.

  4. I guarantee you never offered your services for less than minimum wage, even at your lowest point.

  5. Did you miss the main point Shane? Your comparison is apples to oranges, sheesh.

  6. "Removing it would cause companies to offer employees even LESS than the minimum wage."

    That is the very point Shane, because the goal of a well run company hiring a new employee is business growth based on that employee's labor. As profit grows, wages increase past the current minimum wage as the employee gains experience. If not, the employee looks for other opportunities and may jump ship causing the company to lose a valuable asset and all it's initial training costs etc.

    "Our country cannot survive with no minimum wage."

    So you think that this is the secret glue ingredient that holds the US together?!?? Just a completely ridiculous statement Shane.

  7. Wigglypoff says:

    The other thing minimum wage does is eliminTe jobs. It eliminates businesses. It causes an increase in the price of everything. The cost of minimum wage cases everything to be more expensive. It hurts the very ones it pretends to help. The only ones that benefit from minimum wage is the very rich. It eliminates the middles class not by bringing the lower class up, but by bringing the middle class down. If a guy in his first job(one intended for a student) gets increased wages, unless the middle class gets the same rate of increase than the middle class has been attacked.

  8. Shane, Alas you forget….currently labor Costs account for between 40-45% of the items you are buying. Therefore, when wages rise but output remains stagnant the costs to the end consumer must rise to maintain some form of viability for the company. If McDs starts paying everyone $12.00/he then the costs of everything will rise in that area. That is to say those who currently are at the $12/he level will see their buying power DECREASE while those who now are at the minimum wage will see virtually NO INCREASE in their buying power. You don’t believe this to be true? Look at the economy in the Dakotas…because of Shale oil wages have risen across the board…but Housing , food and energy costs rose commensurate with the new flood of money. Older people who have lived there all their lives can’t afford to stay in their homes….and their is very little affordable housing for them to go to. Heck, there was one article about a guy who built a Steel Building up there and rented out spots inside it for $1000/month so people could park RVs in their spot and live there. There is not a “simple” solution to this problem….raising minimum wage solely raises the bar where poverty resides. Not raising the minimum wage means people must take on responsibility to better themselves right out of that entry level position. For a raise in wage the employer (and the public) have a need to have a raise in output. Do You Honestly Expect That From Today’s Workforce? People use Wally World as a target…but not everyone who works there is stuck at ground level. I know 4 of them who have moved to management and they all said they did it by just “doing a little extra” compared to their compadres. One of them says she got a Dept. head position simply because she did NOT keep her cell phone with her on the floor. When they promoted her that was part of what they said….she put the company 1st… and wasn’t always being told she needed to work. Does the employer have a right to expect you to give them an honest days work?… after all we want to hold them responsible for a LIVING WAGE…. As I said this is not as simple as raising minimum wage, and doing that may very well hurt the people you are trying to help more than it helps…. People claim all the good jobs have gone overseas…. they may be right. But- would American workers be willing to work in hot sweaty factories, held to strict rules about safety…including NO CELL PHONES while on the floor? I doubt it….. Right now we have an argument in our system because people cannot have free abortion drugs. Really? How entitled have we become?… Insanity=continually doing the same thing and expecting different results…. We have continually raised minimum wake-up continually raises the cost of living thereby lowering the quality of life….. NOW the proposal is to do it again with NO other fixes included…..MINIMUM WAGE should be renamed to “entry level wage” at the end of 6 months (earlier if you qualify) the wage should rise… Why pat someone more that cannot do anything or refuses to add value? Simply because otherwise they cannot afford to survive?….Make them be responsible for improving their life…..not the system. Look there are NO simple answers….but this article has merit. When I can offer to do a better job for a lower price….employers give me a chance to prove it.

  9. Shane is an internet troll. His posts are just too stupid to be real.

  10. female guest says:

    My thought is the non-white will always use the race card to get what they want in a white country.

    The U.S. was founded/created by the white Judeo/Christian peoples. Everyone wants what we have. God warned us. An enemy within infiltrated our government, creating hate crime laws….as they are used by totalitarians to gain control.

    Some might call me a racist, but if a racist is one who wants to preserve their civilized society, their heritage, their language, their FAITH, then you may call me a racist…so be it.

  11. Love the article. One of the most concise ones I've seen on the effects of the minimum wage. One correction though; the Wagner Act was passed in 1935, not 1933.

  12. It could be argued the opposite way: why should turning up to do menial work for eight or so hours a day lead to a cosy lifestyle but mean a bare level existence for non-Westerners when they do the same? Gone are the days when Westerners could coast through life. Nowadays they're competing with the whole world now. If someone in India can do your job for no more than $5 an hour then you have to match that or lose your job.

  13. Thank you. Almost no seems to recognize that point that unless existing workers get an equal raise then the value of their training and experience has been devalued. One other group does benefit. Some organized labor contracts call for their workers to get the same increase if minimum wage increases even though none of their members draw minimum wage.

  14. debbee56 says:

    There is still a stigma. There are lots of programs to help those trying to support a family on minimum wage. But if they aren't worth the minimum wage, they are unemployed, not building skills and in many cases, getting into trouble.

  15. peleus212 says:

    Minimum wage jobs were never intended as a life long career, they were to be a jumping off point for the next great oppurtunity. Gave the folks some job skills, getting used to working with people, etc. However the policies of this administration has been to crush the middle class under the guise of wage parity and destroying jobs by taxing job creators out of business.

    Raising the minimum wage will not solve the problem but will merely keep folks that could have gotten a job out of the market. Has anyone looked at the folks now flipping burgers a lot of them have college educations and it is going to be hard to pay off college loans at $10 / hour. But that is not business fault that is government policies.

    Screming in protest for minimum wage to be raised is probably backed by unions they need members. They along with everyone else should be screaming for good paying jobs to be created and then you get livable wages. If you can't get it, then vote the idiots out causing the problem.

  16. When JFK was a Senator, he proposed a raise in the minimum wage in order to protect the local industry (New York) from "unfair" competition Southern industries enjoyed with lower wages. It costs less to live in the South, so employers could get away paying lower wages. JFK knew that that would impact poor black workers adversely, but was driven more by the big money than altruism.

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  18. Mitchina says:

    It all depends on the discriminator…. working for less than the other guy just means all blacks will then work for less than their counterpoarts – period. This "competitive strategy " is either for companies having less overhead on payroll. The only way competitive strategy works is if descrimination doesn't exist. jmho