Read How Capitalism Will Save Us Online
Authors: Steve Forbes
How Capitalism Will Save Us (44 page)
Why? The answer comes down to basic Real World economics: if you make unskilled workers more expensive to employ, employers will simply hire fewer people.
Economist Thomas Sowell is one of many experts who warn that Americans need to pay close heed to the European experience with the minimum wage.
Because minimum wage laws are more generous in Europe than in the United States, they lead to chronically higher rates of unemployment in general and longer periods of unemployment than in the United States—but especially among younger, less experienced and less skilled workers. Unemployment rates of 20 percent or more for young workers are common in a number of European countries. Among workers who are both younger and minority workers, such as young Muslims in France, unemployment rates are estimated at about 40 percent.
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Sowell says that by reducing the number of jobs available to the lowest-skilled workers, minimum-wage laws have similarly hurt minorities in this country, making it harder for them to get a foothold in the economy: “Blacks in general, and younger blacks in particular, are the biggest losers from such laws, just as younger and minority workers are in Europe.”
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Few people today realize that the unemployment rate of black teenagers was at one time about the same as that of white teens. But after steady increases in the minimum wage it climbed to 40 percent by the late 1980s.
Sowell says that this was the intention of some of the supporters of
the early minimum-wage laws, who had an openly racist agenda. “The last year in which the black unemployment rate was lower than the white unemployment rate in the United States was 1930. The next year, the first federal minimum wage law, the Davis-Bacon Act, was passed. One of its sponsors explicitly stated that the purpose was to keep blacks from taking jobs from whites.”
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Concurring with Sowell, economist Walter Williams has called the minimum wage “one of the most effective tools in the arsenal of racists around the world.”
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A Real World truth ignored by politicians is that minimum-wage jobs are basically starter jobs that allow workers to enter the workforce and learn skills. As Walter Williams points out, no one questions when “college students forego considerable amounts of money in the form of tuition and foregone income so that they may develop marketable skills. It is ironic, if not tragic, that low skilled youths from poor families are denied an opportunity to get a start in life.”
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A Real World fact overlooked by well-intentioned advocates of minimum-wage laws: people do not make minimum wages for long. They quickly move up. According to the Heritage Foundation’s James Sherk, an expert on the minimum wage,
[B]etween 1998 and 2003—a time when the federal minimum wage did not rise—the median minimum wage worker earned a 10 percent raise within a year of starting work. During this period, over two-thirds of workers starting out at the minimum wage earned more than the minimum a year later. Once workers have gained the skills and experience that make them more productive, they can command higher wages.
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Sherk and his colleague Rea S. Hederman Jr. also say that minimumwage workers rarely rely exclusively on their minimum-wage paychecks. The majority of them are under twenty-five and “typically not their family’s sole breadwinner. Rather, they live in middle-class households that do not rely on their earnings.”
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As for older minimum-wage workers, “the vast majority … live above the poverty line.” Nor do they fit the stereotype of a worker “living on the edge of destitution.” They report, “More than half—56 percent—work part-time jobs … while 45 percent have incomes over twice the poverty line.”
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In their study “Raising the Minimum Wage: Another Empty Promise to the Working Poor,” professors Richard V. Burkhauser of Cornell University and Joseph J. Sabia of the University of Georgia note that by 2003, only 17 percent of low-wage employees were living in poor households and only 9 percent of minimum-wage employees were actually the heads of such households.
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Furthermore, studies also show that in addition to making it harder to find jobs, minimum-wage increases have other unintended consequences. Michigan State University economics professor David Neumark and Federal Reserve researcher William Wascher believe the minimum wage encourages teenagers from lower-income families to drop out of school. With fewer part-time minimum-wage jobs available, they’re forced to work full-time. The researchers found that a 10 percent increase in the minimum wage caused teenage school enrollment in certain states to drop by 2 percent.
Raising the minimum wage not only hurts the poorest of the poor, but it burdens society with higher prices. Walter Williams believes it is at least partly responsible for the decline in the services we associate with a gentler era.
When I was a kid growing up, neighborhood theatres had ushers to take you to your seats. … Now you don’t see ushers in theatres, and that’s not because Americans of today like to stumble down the aisles in the dark to find their seats. When you pulled into gasoline stations, there were young people out there to wash your windshield, fill your tank with gas, check the air in your tires, and check the water in your radiator. Now we have selfservice stations, not because Americans today like to smell gasoline fumes and get gasoline on their shoes while they fill up the car. The minimum wage destroyed those kinds of jobs.
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Minimum-wage supporters forget that in a free market, transactions take place based on mutual agreement and perceived benefit. If the wages for unskilled jobs were truly too low, there would be no takers. People who take minimum-wage positions clearly perceive that there is a benefit in taking these jobs, usually as a way to gain entry into the economy and as short-term employment. Remember, markets are spontaneous systems that behave in ways that bystanders may not always like.
By imposing their ideas about what people should be making in low-skilled jobs, labor advocates have done their constituents a disservice by pricing out of the market the very neediest job seekers.
REAL WORLD LESSON
Low-wage, unskilled jobs have more benefits than critics believe because markets do not always behave according to the preconceptions of bystanders
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Q
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IDN’T DEREGULATION WRECK THE AIRLINE INDUSTRY?
AN
O, DEREGULATION GREATLY BENEFITED CONSUMERS
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HE PROBLEM IS THAT GOVERNMENT DID NOT FINISH THE JOB
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A
s we have seen in the case of the financial crisis, people often blame problems on a lack of regulation when the real culprit is bad regulation. This is true of the problems plaguing the airline industry.
Anyone who travels knows that airline travel can be a nightmare, with endless time spent on security lines, runways, and crowded planes and coping with lost luggage. No wonder everyone is angry, passengers and staff included. In 2008, the U.S. Department of Transportation received 40 percent more complaints about airline service than in December 2006.
These problems are usually blamed on airline deregulation. Writer Matthew Yglesias, a free-market critic, insists that airline quality has suffered because airlines are free to compete on price: “Previously, airlines barred from competing on the basis of price engaged in fairly vigorous competition on the basis of service quality. So while products generally get better over time, the quality of air travel has deteriorated rapidly as a low-cost, low-quality equilibrium has proven to be consistently more profitable.”
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Is that really true? Airline delays and lost luggage are problems endured by passengers across the board, regardless of what they paid for their tickets. Is bad service really due to the fact that airlines make more money delivering poor quality? In most industries, the high-quality products usually offer the biggest profit margins, because they allow companies to charge more.
Washington’s deregulation of airlines is not responsible for today’s poor service. The problems stem from the fact that—contrary to what is
believed—the entire airline industry was not deregulated. Airports and air-traffic-control systems that are critical to smooth and efficient flying were left under the control of government.
Writing in
Regulation
magazine, Robert Poole Jr. and Viggo Butler explain that government management of our airports and air-traffic-control systems has produced an antiquated, inefficient infrastructure unequipped to handle the explosion of air travel resulting from deregulation.
Government-run airports, for example, are unable to use market-based methods to reduce airport congestion—such as using peak pricing to direct some usage by carriers into off-hours. This would not only cut down on overcrowded terminals, it would generate much-needed fees to finance expansion and technological improvements both in air traffic control and in airport facilities.
Poole and Butler say that the misery of today’s air travel is largely caused by an air-traffic-control system that relies on outdated 1950s technology. Only recently did the FAA announce that it would phase in more sophisticated NextGen air-traffic-control systems that use the kind of GPS satellite navigation technology consumers have had for years in passenger cars. The new systems would enable airports to handle at least twice as much traffic.
NextGen technology has existed for years. But the system has been bogged down in political debate. Not having to account to consumers, bureaucrats, as always, take their time at taxpayer expense. NextGen isn’t expected to be fully in use until about 2025, at a total cost of some $35 billion.
Other countries already have more efficient, up-to-date air-traffic-control systems than the United States because they have given the management of airports and air-traffic-control systems to nonprofit corporations under industry control—and out of the hands of politically interested government bureaucrats.