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Racist origins of the minimum wage

Far from being a floor below which wages do not drop, the minimum wage is a barrier over which increasing numbers of the population cannot jump

by Guy Bentley on 14 February 2013 13:49

One of the more striking announcements in Barack Obama's recent State of the Union address was his intention to raise the minimum wage from $7.25 an hour to $9.00 an hour. In June last year President Francois Hollande raised France's minimum wage to €9.40 an hour and in Britain we hear from the likes of the Green Party that minimum wage should be raised to £8.10 an hour.

The minimum wage has become a sacred cow in many countries. To be opposed to increasing it is to automatically be accused of not caring for the plight of the low-paid. And these days, you’ll no doubt be told to 'check your privilege' if you propose abolishing it.

Support for minimum wage is seen not just as an economic issue, but also an issue of social justice in the never-ending battle between capital and labour. Today's Supporters of minimum wage no doubt have good intentions, but they should not be so quick to caricature the opponents of their position as heartless and immoral.

The origins of many minimum wage policies within the progressive and labour movements are not ones which any decent person would be quick to endorse. One such case is documented by the African American economist Walter Williams in his 1989 book, South Africa's War against Capitalism.

He documents how during the apartheid era the most ardent proponents of the minimum wage were white racist unions seeking to protect their jobs from honest competition with black South Africans. He quotes one South African union leader as saying:

''There is no job reservation left on the building industry, and in the circumstances I support the rate for the job (minimum wages) as the second best way of protecting our white artisans''

It is clear why racist employers favour the minimum wage. Once a statutory minimum wage is set the employer no longer pays the price for his discriminating on the grounds of race.

If all low skilled workers are to be paid $9 an hour and a racist employer has two candidates for a position – one black and one white – and he chooses the white candidate, he is at no disadvantage. But if there is no minimum wage, non-racist employers can hire anyone of any race and these prospective workers have the freedom to get their first chance in the labour market by undercutting what the racist employers pay their staff.

If the non-racist employer can hire the previously rejected black candidate for $7 an hour instead of $9 then the racist employer is paying a price for his prejudice. The racist employer is at a huge disadvantage amongst his competitors as he is paying his workers more, not for their productivity, but for the colour of their skin. The minimum wage removes the market’s ability to punish prejudice.

In an article for the Freeman, economists Steven Horwitz and Art Caden examine the relationship between Eugenics and the progressive movement. They cite a journal article written by Thomas C. Leonard published in the journal of economic perspectives.

We see that historically the progressive left, who were strongly sympathetic and even outright advocates of the new science of Eugenics, agreed with the arguments made by classical liberal free market economists that the minimum wage would create unemployment and deprive opportunity to the most vulnerable in society. But the difference was the classical liberals thought this an abomination; the progressive left thought this was a positively good thing.

Leonard writes that:

''The progressive economists believed that the job loss induced by minimum wages was a social benefit as it performed the eugenic service ridding the labour force of the unemployable.''

These progressive economists included John R. Commons, a socialist and prohibitionist, and Richard T. Ely, a leading progressive of his day. Amongst the non-economists of the left who advocated minimum wages and other labour restrictions were Eugene Debs and leading British socialists Sidney and Beatrice Webb.

So before those on the left wish to ascribe intentions of malice and cruelty to those who advocate the abolition of the minimum wage, they should look to the intentions of those who first proposed it and the arguments made by those who opposed them.

The arguments against the minimum wage are stronger now than ever before. Disproportionate numbers of minorities and the poor are unable to get their first job to gain experience and an income, as they do not already possess the skills to produce the current minimum wage. Indeed in the US it has been found that even in 2007, before the worst of the financial crisis, four-fifths of minimum wage jobs were occupied by individuals who were not poor – typically college students still living at home with relatively affluent parents and wives or husbands doing part time work to bring in some extra money.

The great recession has now made matters worse. A study done by the Cato Institute in 2012 found that just 11.3 percent of the workers who would gain from a rise in the minimum wage to $9.50 live in poor households. That said, it is encouraging to note that the same study found that two-thirds of those who start on the minimum wage rise above that after one year.

This evidence, and the fact that the vast majority of workers are paid more than the minimum wage, illustrates the truth that employers must compete for labour and have to pay approximately what they are worth.

Far from being a floor below which wages do not drop, the minimum wage is a barrier over which increasing numbers of the population cannot jump.

President Obama's proposal to raise the minimum wage when unemployment is at 11.5 percent among 18-29 year olds, 22.1 percent among young African Americans, and 13.7 percent among the disabled, appears reckless to say the least. While president Obama and many progressives who call for increases in minimum wages may have the best intentions, it is not compassionate to ignore evidence that shows a policy which on its surface appears fair in fact creates poverty and destroys opportunity.

As was once said, ''Zero is the minimum and maximum wage for jobs that don't exist''.

Read more on: labour vs. capital, minimum wage, free markets, and Guy Bentley
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