Minimum Wage Is A Cruel Policy For Poor People

Release Date
November 7, 2016


Economics Politics & Policy Poverty & Inequality

The minimum wage is often cast as a humanitarian cause… but it’s not: it harms the very people its supporters are fighting for. Professor Don Boudreaux explains the original reason the minimum wage was established, and its impact then and now.

Does the Minimum Wage Hurt Workers? (video): Antony Davies describes the harmful effects of the minimum wage on workers
Economics: Is Raising Minimum Wage A Bad Idea? (video): Don Boudreaux explains the harmful effects of the minimum wage

The minimum wage is really, really a vicious, horrible, cruel policy for poor people. What makes it even worse is that it is camouflaged as this great humanitarian policy. It’s not. Let me say just a quick word about the history of the minimum wage. No one doubts this, I mean everyone who’s studied this agrees with this, the minimum wage was first passed in the United States in 1938 not as a means of raising the wages of low skilled workers. Its purpose was to price out of jobs low skilled workers.
The minimum wage was lobbied for by owners of north eastern textile mills, mostly in Massachusetts and the labor unions there who did not like the competition they were getting from the upstart textile mills in the American south, in the Carolinas and in Georgia. They realized that the advantage that those southern textile mills had was that they had access to a lot of low wage workers. These people in the south, their next best alternative was share cropping in many cases. They were working at really low wages, and so the mills in the north east, they had this bright idea, they said “Wow, you can’t just outlaw the southern textile mills. I know how to get rid of them. Let’s pass a national minimum wage.”
By doing so the intent was to make the operation of those southern textile mills too costly. That was the intent, and although the ethics of that enterprise was abominable at least they had their economics right. They understood that if you raise the minimum wage that’s going to price out of jobs low skill workers and it’s going to help, it’s going to give disproportionate unearned benefits to higher skilled workers. In an economy that is as large as our, and has a work force of over 150 million people, it’s a 17 trillion dollar annual economy. It’s very dynamic, you have changes going on all the time in the labor force, in the output markets and the input markets.
It’s almost impossible for people who are denied jobs because of the minimum wage or who lose jobs because of it to know that that’s why they lost their jobs. It’s very easy for those who see a raise that they get when the minimum wage is enacted to understand that’s why they got a raise. So this is another case where what is visible is very obvious and very politically salient, and the harm is very invisible and hence it becomes a political non-factor.