Honolulu Advertiser Second Opinion column by Cliff Slater

May 29, 1996

Minimum wage hurts poor

Congress is currently considering an increase in the minimum wage from $4.25 to $5.15. Instead, they should repeal the minimum wage completely. It is a poor public policy that hurts most the very people we intend to help--those on the lowest rung of the employment ladder.

Minimum wage legislation attempts to pay for what is essentially a welfare program using an unfunded mandate on employers. However, since we do not yet force employers to hire people for more than they are worth, the net outcome of a higher minimum wage is greater unemployment among those least qualified to get a job.

Some people are simply not worth the current minimum wage. We are not discussing peoples' intrinsic worth, only their value in economic terms to employers. To be able to sell their products and services, employers at least have to recover employees' costs.

Most people have marketable skills based on combinations of education, communication skills, experiences, abilities and attitudes. Those who score very high in all these areas can make $50 an hour or more. Those who score very low in all these areas are not worth the minimum wage.

Consider new immigrants from third world rural areas who speak no English, are illiterate in their own language and have no work skills that are of use in the U.S. Or, consider apathetic teenage drop-outs with no work skills who can barely communicate in their own language? As an employer, how do you put them to work, pay them $5.15 an hour, and still recover their cost?

The minimum wage—and the increases to it—spurs unemployment through substitutions of machinery and imported goods and by employers raising their prices.

When the government raises the minimum wage few employees are laid off immediately. The process is a slow and insidious one and has its greatest effects on those not hired rather than those laid off.

For example, the higher the minimum wage the greater likelihood that employers will substitute machinery for workers. They will keep existing trained workers and forgo hiring new entry level employees.

If the prices of employers' products are barely competitive with imported goods then, as the government increases the minimum wage, employers will substitute more imported finished goods or components. Once again, they will forgo hiring new employees.

If employers cannot substitute machines or imported goods but can only raise prices, there will be less demand for their products. Even if they do not lay people off, they will not hire new ones.

In the end people will say, "See—few people were fired and the same employees are making more than they used to." However, the people that would have been the new entry level employees will not get hired. It will show up in high unemployment rates for teenagers and the marginally employable. The minimum wage increase will have taken away another rung of the employment ladder.

Without a minimum wage virtually everyone is employable. Once we start people on the lowest rung they get experience. Experience teaches communication, modifies behavior, changes attitudes and in the process makes people more valuable. Take away the lowest rung of the ladder and there is nowhere for them to get started.

It is time that people understood the insidious effects of the minimum wage and repealed it. Government should address the poor through welfare programs and not by distorting market processes; it is too harmful to the least employable among us.