What's the Right Minimum Wage? | 5 Minute Videos | PragerU — Transcript

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1. 0:00"The Right Minimum Wage: $0.00."
2. 0:04That was the headline of an editorial in one of America's most prestigious newspapers.
3. 0:10Can you guess which one? The Wall Street Journal, perhaps?
4. 0:13Right city; wrong paper. This editorial appeared in the New York Times in 1987.
5. 0:21"There's a virtual consensus among economists," the Times wrote,
6. 0:25"that the minimum wage is an idea whose time has passed."
7. 0:30So, economists and the liberal paper were on the same page (pun intended).
8. 0:35Why?
9. 0:36Because they understood that a minimum wage does not guarantee jobs. It guarantees only
10. 0:43that those who get jobs will be paid at least that minimum. And that leads to two bad outcomes:
11. 0:50unemployment and higher prices. I can best explain this by asking a simple question:
12. 0:56What is a wage? A wage is the price of labor. Now, what happens if the price of
13. 1:02labor rises, not because workers have become more productive, not because a business must
14. 1:07pay higher wages to hold on to valuable employees, but only because the government requires it?
15. 1:15When the minimum wage rises, employers will adjust. They will use less labor.
16. 1:20They'll fire current employees or cut back on their hours.
17. 1:23They will also raise prices for their goods or services. These are undesirable consequences.
18. 1:29But let's also consider another bad effect
19. 1:32Businesses will hire fewer workers, especially those with little or no job experience.
20. 1:39Suppose you're young and haven't worked many jobs before. Maybe you've never had a job
21. 1:44and are trying to land your first one.
22. 1:46The work you can offer an employer may be worth only, say, $7 an hour.
23. 1:51You agree. He agrees. And you have your first job.
24. 1:56But what if the minimum wage set by the government is higher than $7? What if it's $10 or more?
25. 2:02Well, you won't get the job. You may be willing to work for $7 an hour,
26. 2:08but under minimum wage laws, it would be illegal for you to do so.
27. 2:12This very point was made by Paul Samuelson, one of the leading economists of the twentieth century,
28. 2:18and a prominent liberal. I paraphrase from his classic textbook Economics:
29. 2:24"What good does it do a black youth to know that an employer must pay him a minimum wage
30. 2:29if the fact that he must be paid that wage keeps him from getting a job?"
31. 2:35And, that young person loses more than a paycheck. He also loses valuable work experience:
32. 2:41learning to accept responsibility, dealing with a boss, getting along with co-workers -- all the things
33. 2:47that demonstrate to an employer that he made the right choice in hiring; and all the things
34. 2:52that will help that young person get a better paying job down the road.
35. 2:58A recent study found that in some cities the unemployment rate for teens without a high
36. 3:02school diploma approached 50%.
37. 3:06Pricing these teens out of the labor market does them no favors.
38. 3:10It's not doing the rest of society any favors, either. Teenagers who can't find jobs
39. 3:15often find trouble. Advocates of a higher minimum wage argue that,
40. 3:21while some young people might be priced out of the job market, this is outweighed by the
41. 3:25fact that those who have minimum wage jobs will get a wage increase.
42. 3:30But that doesn't mean they'd be better off. It's true that the government can force business
43. 3:35owners to pay its minimum wage workers more per hour, but it can't force these business
44. 3:40owners to pay them more per week. According to the Los Angeles Times, after Connecticut
45. 3:45raised its minimum wage to $10.10 an hour, a 20 year old woman who worked at a donut
46. 3:50shop in Hartford was soon disappointed when her hours were cut from 35 per week to 27.
47. 3:58Employers will look for other ways to cut costs. The Economic Policy Institute, a union-funded
48. 4:04organization that pushes for higher minimum wages, admits this. "Employers," they write
49. 4:09on their website, "may be able to absorb some of the costs of a wage increase through higher
50. 4:14productivity, lower recruiting and training costs, decreased absenteeism, and increased
51. 4:19worker morale." How would an employer get higher productivity? By working the employees harder.
52. 4:25How would an employer cut training costs? By training them less.
53. 4:30So, let's summarize. Raising the minimum wage makes it harder for young and inexperienced
54. 4:35workers to get jobs, to get on that crucial first rung of the employment ladder.
55. 4:41And many of those who do benefit from a wage increase will likely find those benefits undone.
56. 4:46They will work fewer hours, will work harder per hour, and will get less training.
57. 4:51Sounds like the New York Times had it right back in 1987.
58. 4:55I'm David Henderson, the editor of The Concise Encyclopedia of Economics, for Prager University.