Academic journal article Economics, Management and Financial Markets

Closing the Gap: Why Minimum Wage Laws Disproportionately Harm African-Americans

Academic journal article Economics, Management and Financial Markets

Closing the Gap: Why Minimum Wage Laws Disproportionately Harm African-Americans

Article excerpt

Why are black unemployment rates higher than those of whites?1 Common explanations include racism, lack of representation in government, or the market as an oppressive institution. All of these explanations fail: minimum wage laws are the real culprit. States Sowell (2015) in this regard:

Low-income minorities are often hardest hit by the unemployment that follows in the wake of minimum wage laws. The last year when the black unemployment rate was lower than the white unemployment rate was 1930, the last year before there was a federal minimum wage law. ... 'Incidentally, the black-white gap in unemployment rates for 16-year-olds and 17-year-olds was virtually nonexistent back in 1948. But the black teenage unemployment rate has been more than double that for white teenagers for every year since 1971. This is just one of many policies that allow liberals to go around feeling good about themselves, while leaving havoc in their wake. '

Section 1 considers three possible causes of the unemployment disparity, and ultimately rejects all of them. Section 2 provides a brief general history of minimum wage laws. Section 3 covers theoretical considerations of labor economics. Section 4 criticizes the prevailing wisdom that minimum wage laws, even if ineffective, are the result of well-meaning social advocates. Instead the history of these laws is one of deliberate collusion on the part of unions, particularly in an effort to disparage minorities and immigrant workers. Section 5 offers possible solutions to the gap in marginal productivity. Section 6 concludes.

1. Three Possible Causes of the Unemployment Disparity

The most common explanation given for the high black unemployment is discrimination. The hypothesis is that employers fail to hire blacks because they harbor feelings of ill-will towards minorities. This seemingly plausible hypothesis fails to square with empirical data. Given that both legal and social standing for African-Americans improved steadily throughout the second half of the 20th century, the discrimination hypothesis would predict that the ratio of black to white unemployment would steadily fall concomitantly with the diminution of racist attitudes. The repeal of Jim Crow Laws, the Separate but Equal Clause, and the enactment of the various Civil Rights Acts all suggest that employment conditions for blacks would improve during this period.

The death knell for this hypothesis is that the data does not conform to it. In 1975 the black unemployment rate was 14.8 percent, while the white unemployment rate was 7.8 percent. The black to white unemployment ratio was thus less than two (Reynolds, 1995: 43). Yet in each year from 1980 to 1993 this ratio was greater than two (Pew, 2013). If discrimination were the significant factor contributing to black unemployment, then one would expect the data to show the very opposite tendency. The fact that black unemployment increased relative to white unemployment during this period shows that discrimination is at best a very weak factor in explaining black unemployment. More accurately, the one cannot possibly be the cause of the other.

Another possible explanation for high rates of black unemployment is the relative absence of members of this community in Congress. This branch of government writes the laws, after all, and therefore sets the rules of the game. Blacks are underrepresented in Congress, so perhaps their employment interests are denigrated. This hypothesis fails for the same reason as the one about discrimination - the data fails to support it. While it is true that blacks are still underrepresented in Congress, this disproportion fell during the same period that the black to white unemployment ratio rose. "Subsequently, the number of African American Members steadily increased. In the 98th Congress (1983-1985), the number surpassed 20 for the first time and in the 103rd Congress (1993-1995) reached 40" (Manning). The underrepresentation hypothesis would predict that black to white unemployment would fall as a consequence of black gains in Congress, but the data do not bear this out. …

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