Minimum Wage: Good Intentions, Bad Policy

the AZEL PERSPECTIVE Commentary on Cuba's Future, U.S. Foreign Policy & Individual Freedoms - Issue 87

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Minimum wage laws are politically sacrosanct; politicians who argue against increasing the minimum wage commit political suicide. Voters believe that minimum wage laws are necessary to insure that low-skilled workers, especially new entrants, teens, and minorities, earn a living wage and are not exploited by greedy capitalists. Echoing this sentiment, President Obama in his 2013 State of the Union Address proposed to increase the federal minimum wage to $9.00 an hour claiming that “This single step would raise the incomes of millions of working families.” Similarly, a March 27 Miami Herald editorial argued for state legislators to “Stop assault on fair-wage laws.” These are laudable ideals, but do minimum wage laws produce the desired results? Our distinction as humans is that we survive, not by sharpness of tooth or claws, but by sharpness of mind, an attribute we do not seem to use when thinking about minimum wage laws.   The cruel and unspoken irony is that minimum wage laws do the most harm to the segments of our society that we seek to help- the unskilled poor and the inexperienced youth. Intuitively we all understand the fundamental principle of economics that when the price of anything increases, the quantity demanded of that good or service will decrease. The wage rate is the price of labor; if the cost of labor is increased via a government command, the quantity of labor demanded will decrease. Simply put, other things constant, the number of jobs offered will decrease when the minimum wage is artificially increased. The case against minimum wage decrees is pellucid and straightforward: Increasing the cost of job creation will decrease job creation. Even as I write this, I can hear the angry criticism, but pray tell: How exactly does mandating an increase in the price of labor help the unemployed? Even worse, the resulting decrease in employment becomes permanent as employers shift to labor-saving production technologies or to outsourcing abroad. True, those who keep their jobs will earn more, but others will lose their jobs or fail to get one when new jobs are not created. Many who live in poverty are unemployed and thus will not benefit from an increase in the minimum wage. In fact, their prospects for employment will diminish.   Let’s be clear, enacting a higher than market minimum wage law does not result in a higher income for all workers, only for those who retain their jobs. And this increase will be at the expense of those who will become or will remain unemployed. We know this and yet, minimum wage laws remain popular with public officials and with voters who want to express their compassion for the working poor.   A more cynical reason is that advocating for an increase in the minimum wage is a way of making political points without having to account for an increase in government expenditures since the cost is presumably borne by employers. Unlike government, however, employers cannot print money and the increased costs will be passed on to consumers in the from of higher prices,  or will be shouldered by those that will not be able to find a job because their skills do not command a wage level theatrically dictated by government fiat. Hysteresis is the dependence of a condition not only on the current environment but also on its past environment; the lagging of an effect behind its cause.   When government policy prices low-skilled workers and the inexperienced young out of the job market, skills atrophy, hope fades and, tragically, unemployment becomes a way of life. Our current persistent unemployment levels among the disadvantaged may very well be the hysteresis, or lagging effect, of our unreflective support of minimum wage laws.  Sixty years ago the unemployment rate of 16-19 years old was less than 8%. Today, after many rounds of minimum wage increases, youth unemployment is over 24% and close to 40% for black teenagers. Are minimum wage laws responsible for creating this new normal?   The proposition that government can diminish poverty by making it more expensive for businesses to hire young and low skill workers is illogical and worse, it is dishonest. If government can diminish poverty by enacting a $9.00 minimum wage as claimed by the President, why stop there? Let’s raise the minimum wage to $90.00 an hour and eliminate poverty altogether. This is, of course, nonsense and so are minimum wage laws. We will not get good results from implementing a bad idea. Advocating for a higher minimum wage mandate is equivalent to advocating for higher unemployment. Please let us know if you  this article. We welcome your feedback. Abrazos,  Lily & José  (click on the name to email Lily or Jose) This article was originally published in English in the Miami Herald and in Spanish in El Nuevo Herald.   José Azel, Ph.D. José Azel left Cuba in 1961 as a 13 year-old political exile in what has been dubbed Operation Pedro Pan - the largest unaccompanied child refugee movement in the history of the Western Hemisphere. He is currently dedicated to the in-depth analyses of Cuba's economic, social and political state, with a keen interest in post-Castro-Cuba strategies as a Senior Scholar at the Institute for Cuban and Cuban-American Studies (ICCAS) at the University of Miami and has published extensively on Cuba related topics. In 2012 and 2015, Dr. Azel testified in the U.S. Congress on U.S.-Cuba Policy, and U.S. National Security.  He is a frequent speaker and commentator on these and related topics on local, national and international media.  He holds undergraduate and masters degrees in business administration and a Ph.D. in International Affairs from the University of Miami. José along with his wife Lily are avid skiers and adventure travelers.  In recent years they have climbed Grand Teton in Wyoming, trekked Mt. Kilimanjaro in Tanzania and Machu Pichu in Peru.  They have also hiked in Tibet and in the Himalayas to Mt. Everest Base Camp. They cycled St. James Way (El Camino de Santiago de Compostela) and cycled alongside the Danube from Germany to Hungary. They have scuba dived in the Bay Islands off the Honduran coast. Their adventurers are normally dedicated to raise funds for causes that are dear to them.  Watch Joe & Lily summit Kilimanjaro. Books by Dr. José Azel In Reflections on Freedom, José Azel brings together a collection of his columns published in prestigious newspapers.  Each article reveals his heartfelt and personal awareness of the importance of freedom in our lives.  They are his reflections after nearly sixty years of living and learning as a Cuban outside Cuba. In what has become his stylistic trademark, Professor Azel brilliantly introduces complex topics in brief journalistic articles. Buy Now En Reflexiones sobre la libertad José Azel reúne una colección de sus columnas publicadas en prestigiosos periódicos. Cada artículo revela su percepción sincera y personal de la importancia de la libertad en nuestras vidas. Son sus reflexiones después de casi sesenta años viviendo y aprendiendo como cubano fuera de Cuba.  En lo que ha resultado ser característica distintiva de sus artículos, el Profesor Azel introduce con brillantez complejos temas en  breves artículos de carácter periodístico. Compre Aqui Mañana in Cuba is a comprehensive analysis of contemporary Cuba with an incisive perspective of the Cuban frame of mind and its relevancy for Cuba's future. Buy now   Pedazos y Vacíos is a collection of poems written in by Dr. Azel in his youth. Poems are in Spanish. Buy now

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