Minimum Wage Increase Supported By Obama, Despite Clear Evidence to Avoid It

I often frequent a parking garage in Brooklyn.

On my way out the door, a nice lady in her 60s would take my ticket with a smile and accept my payment. This morning, I drove up to the gate and found she had been replaced by an automatic system. At the grocery store and the local Home Depot, cashiers are being replaced by self check out lanes. Gas attendants were long ago replaced by self-serve pumps, and ATM’s have sent many bank clerks to another line of work. McDonalds is now working on instituting self-order kiosks for its restaurants. Expect further automation in the kitchen in the future, replacing even more workers.

When the cost of labor rises, corporations are encouraged to automate. Health insurance mandates and increases in minimum wage fuel the quest for automation. President Obama has already instituted a costly health insurance overhaul, and is now looking to raise the federal minimum wage to $9/hour. Proponents suggest this is good news for low income workers, but nothing could be further from the truth. Sure, some Americans making the minimum wage will get a bump in salary, but many others will lose their job, or never be hired in the first place.

As illustrated in this graph, it’s simple economics; supply and demand.

The people of American Samoa saw the wonders of raising the minimum wage first hand. In 2007, the do-gooders in Washington passed the Fair Minimum Wage Act. Who could oppose such a wonderful, benign sounding law? Apparently not many, as Congress voted in favor of the law by a vote of 378-11. The Act provided for annual 50-cents per hour increases until the rate matched the rest of the U.S. The last increase went into effect in 2009. The same day, Chicken of the Sea closed its Samoan operation, moving to a highly automated plant in Georgia. With the closing, 2,042 jobs were lost, 12% of the island’s employment base, not to mention secondary jobs which fed off of the cannery including eateries, shipyards and buses. Similarly, Starkist Co. has announced the reduction of some 800 positions in Samoa, citing high labor costs. 

In 2011, the Government Accountability Office issued a report revealing that increases in the minimum wage did in fact cause declining employment in Samoa, citing the loss of the Chicken of the Sea factory. American Samoa Gov. Togiola Tulafono said the 2009 cannery closure led to unemployment reaching nearly 20% by 2010.

Mercifully, further increases in the minimum wage have been put on hold. Remarkably, the freeze has been signed into law by none other than Barack Obama: Yes, the same guy who is arguing for $9 minimum wage here in the states. Sure the policy has been a disaster in Samoa, but there’s no reason to believe it will be anything but a ringing success here on the mainland.

Many argue that “greedy” companies would pay slave wages if not for the government imposed floor. Yet, for some reason these same greedy companies pay more than 24 out of 25 workers more than minimum wage. Who does make minimum wage or less? About half are under the age of 25, and more than 1-in-4 are teenagers. Remarkably, 4 out of 5 minimum wage workers aren’t poor either. Two-thirds of those who start out making minimum wage make more in less than 12 months. They are generally people simply looking to supplement their household income.

As is often the case with government policy, minimum wage laws hurt the people they are designed to help the most; particularly minorities. This should come as no surprise since minimum wage laws were supported by ardent racists. For instance, the Davis-Bacon Act was passed in 1931, requiring private contractors to pay “prevailing wages” to employees on construction projects receiving significant federal funding. The act was passed “to prevent non-unionized black and immigrant laborers from competing with unionized white workers” and has been remarkably successful in achieving this goal for the past 80 plus years.

During the Great Recession, unemployment among black teens was close to 50%. A recent study found that among black males without a high school diploma, employment decreased by 6.5% for every 10% increase in the minimum wage. Remarkably, this is more than twice the negative effect found among white males in the same group.

Economists at the University of California-Irvine and the Federal Reserve Board reviewed research from the last two decades and found that 85% of the most credible studies on the minimum wage point to job loss for less-skilled employees. Of course, don’t expect such data to convince Obama and his ilk to change course. Real world outcomes matter little to do-gooder politicians.

Good intent is the measure by which they judge themselves.