Monday, July 4, 2011

The consequence of the minimum wage

One of the most common arguments when it comes to the minimum wage is that it hasn't keep pace with inflation, and therefore should be raised. However, only one part of that argument is factual. The other is purely opinion.

In 1978, the minimum wage was $2.65 per hour, which when it is adjusted for inflation would equate to $9.18/hr in 2011. Therefore, it is true that increases in the minimum wage have lagged behind increases in the general price level.

But an increase in the minimum wage is a government action ... and all actions have consequences. Even if that action is supposedly in response to other events, the consequences are real.

According to the Bureau of Labor Statistics, only one in four teens, age 16-19, have found a job. Notice the steady downward trend since the peak in the late 70's.

Notice how teen employment dropped until the early 80's, then climbed again until 1989, when it began another steep drop.

What happened?

YearMin. Wage
1990 $3.80
1991 $4.25

Each drop in teen employment was preceded by a federally mandated increase in the minimum wage. This is a small sample which illustrates this larger pattern. It is an entirely predictable pattern. And it should call into question the very existence of a minimum wage.

The entire history of minimum wage rates is available at the US Dept of Labor.

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