US History Shows the Minimum Wage Has Harmed the Black Community
The United States is the wealthiest society in human history, yet despite decades of economic growth, black Americans remain at a socioeconomic disadvantage. Policies intended to resolve these disparities have only made things worse.
Prior to the welfare state policies like the minimum wages, black Americans improved their living standards through enormous productive gains—an impressive feat, given the lawless injustice of the Jim Crow laws. Unfortunately. These well-intentioned policies have widened the racial gap.
The turn of the 20th century was marked with reduced foreign labor from immigration restrictions and increased demand for Americans goods. The North’s industrial economy boomed and attracted blacks away from the South’s agricultural industry, largely due to recruitment efforts by Northern industrialists. This lead to the population of blacks living outside the South tripling from 1910 to 1950.
Blacks migrating north assimilated into the workforce by accepting lower wages in return for work experience. This pay-gap was not ideal, but it allowed the average black migrant to experience a 30 percent increase in annual earnings by moving north.
Before the [federal minimum wage], the black-white unemployment gap was insignificant, never permanently exceeding 1 percent.
Ultimately, blacks achieved huge gains in wages, education, and political expression, despite the injustices of the time. The black labor force developed considerably and, by 1940, the black-white wage gap had sharply declined.
This began to change in 1938, when Congress legislated the Fair Labors Standards Act (FLSA), and instituted the first federal minimum wage of US$0.25 per hour. The new minimum wage prohibited black youths from entering the labor market, harming their long run employment potential.
Before the FLSA, the black-white unemployment gap was insignificant, never permanently exceeding 1 percent. But since the introduction of the minimum wage, the gap has increased.
In a study of over 600,000 data points, focusing on 16 to 24-year-old males without a high school diploma, the Employment Policies Institute found that every 10 percent increase in a federal or state minimum wage decreased black youth employment by 6.5 percent.
Black teenage unemployment was roughly equal to their white counterparts in 1948, but has since diverged sharply away from whites. The same is true for the labor force participation of black teenagers.
The minimum wage continued to reduce black youth employment from 1940 to 1970, with the racial unemployment gap expanding as a result.
However, during this same period, the racial income gap shrank to it its lowest point. Wage growth for the entire black community — not just black youths — was almost double the subsequent growth from 1970 to 2000.
[adrotate group=”8″]This seemingly counterintuitive development is the result of the disproportionate impact minimum wages have on young people — since they tend to be the lowest wage earners.
While older blacks already in the workforce were less likely to be affected by the new price floor, the minimum wage effectively prevented black teens from gaining work experience, and the necessary skills for future labor. This was exacerbated by an education system rigged by racist government funding mandates, which prevented black teens from building sufficient human capital through schooling.
When this generation of black teens hit their 20s, many of them had no job experience and, because of wage floors, were unable to find employment. Eventually, they exited the workforce entirely.
Until 1970, the labor force participation rates of black males age 20-24 were equal to, and even slightly higher, than whites of a similar age. Unemployment of the same group, which widened after the minimum wage, was 62 percent higher than whites in the same year. By 1980, both measures worsened as blacks exited the labor force in large numbers.
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In 1965, the Great Society began to “fight” racial and economic disparity through a number of welfare programs and jobs initiatives that still exist today. These policies were targeted at the poor, and although blacks were continuing to make large economic gains, they disproportionately qualified because they were still the poorest demographic at that time.
These welfare programs became competition for labor wages, creating perverse incentives for young blacks in the labor market —many of whom responded to these incentives. This is not to say that blacks did not want to work, but that they acted rationally by responding to the incentives to accept wages over welfare.
As Paul Krugman acknowledges in his economics textbook, “Public policy designed to help workers can lead to structural unemployment as an unintended side effect.”
The minimum wage price floor had already contracted the labor market for young blacks who, in search of income, found themselves stuck in government programs. Black unemployment increased, and labor force participation decreased, following the Great Society and the introduction of the minimum wage.
Unfortunately, the Great Society has had very little impact on the poverty rate, and has completely failed to reduce the socioeconomic disparity between black and white Americans.
Blacks made significant gains in economic prosperity up until the minimum wage and Great Society welfare state; all in spite of lawless government policies. Without these disastrous programs, they would have continued to make productive gains and close the economic gap.
The economy must empower blacks to participate in entrepreneurial markets that can build their communities. We continue with a failed welfare state approach, which only increases dependency on the state.