American Elephants

Milton Friedman Takes On the Minimum Wage by The Elephant's Child

The do-gooders believe that by passing a law saying that nobody shall get less than $9 per hour (adjusted for today) or whatever the minimum wage is, you are helping poor people who need the money. You are doing nothing of the kind. What you are doing is to assure, that people whose skills, are not sufficient to justify that kind of a wage will be unemployed.

The minimum wage law is most properly described as a law saying that employers must discriminate against people who have low skills. That’s what the law says. The law says that here’s a man who has a skill that would justify a wage of $5 or $6 per hour (adjusted for today), but you may not employ him, it’s illegal, because if you employ him you must pay him $9 per hour. So what’s the result? To employ him at $9 per hour is to engage in charity. There’s nothing wrong with charity. But most employers are not in the position to engage in that kind of charity. Thus, the consequences of minimum wage laws have been almost wholly bad. We have increased unemployment and increased poverty.

Moreover, the effects have been concentrated on the groups that the do-gooders would most like to help. The people who have been hurt most by the minimum wage laws are the blacks. I have often said that the most anti-black law on the books of this land is the minimum wage law.

There is absolutely no positive objective achieved by the minimum wage law. Its real purpose is to reduce competition for the trade unions and make it easier for them to maintain the higher wages of their privileged members.

Here’s How to Put Waiters and Waitresses Out of Work. by The Elephant's Child

In an election year, one of the big problems is that everyone wants to do nice things for their voters. They want to appeal to the heart.  But your government does not love you, much as they try to make you think they do. They love getting re-elected.  Case in point: Senator Tom Harkin (D-IA) has introduced the Rebuild America Act. (Good names make it harder to vote against). Among other things, the Iowa Democrat wants to raise the minimum wage by 220% for employees who receive tip income, such as waiters and waitresses. Huh?

Seems like only yesterday, Congress was railing about waiters and waitresses not paying taxes on their tip income. Fact: the federal minimum wage for employees who earn tip income is $2.13 an hour. The Labor Department permits this lower minimum wage so long as the employee earns at least the full federal minimum wage of $7.25 when tips are included. If tips fall short of that amount, employers kick in the rest. According to Census Bureau data, the average hourly wage for a restaurant employee earning tip income is $11.82. Top earners can collect $24 an hour or more. It pays to be a nice waiter or waitress.

The difference between the two minimum wages is called the “tip credit.” It is a political acknowledgment of the single-digit profit margins in tipped industries, and of the income supplement that gratuities provide.

Economic studies show no relationship between a boost in restaurant employee base wages and their take-home compensation.  A study that examined 20 years of Census Bureau data found that each time the mandatory state wage for tipped employees rose by 10%, hours worked fell by 5%.

Economists William Even and David Macpherson analyzed Sen. Harkin’s bill, and they estimate that the combined loss of hours would translate to the loss of 447,000 jobs. There are always consequences. Table-service restaurants have experimented with computer terminals tat allow customers to order and pay at the table. When a server is only carrying food to the table, restaurant jobs won’t be as lucrative.

Progressive politics is simple. Just make the employer pay more. The law of unintended consequences always applies.  But if Sen. Harkin’s bill doesn’t pass, restaurant employees in Iowa will know (maybe) that he tried, which is the point.


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