Why Not a $1000-an-hour Minimum Wage?

Doug French

Though Governor Kenny Guinn is proposing punitive tax increases that would destroy many jobs in Nevada, the Progressive Leadership Alliance of Nevada (PLAN) isn’t satisfied. It wants the state to go even further and virtually abolish first jobs for many young Nevadans.

How? By increasing the state’s minimum wage beyond the federal minimum.

Nevada state law does not mention minimum wage amounts; instead the federal minimum wage rate is adopted by administrative action. Thus the state’s minimum wage is the current federal rate of $5.15 per hour—guaranteeing that any potential employees who don’t add at least $5.15 per hour of additional productivity will be unemployed.

Minimum wage laws have been destructive ever since they began in 1938 with the passage of the Fair Labor Standards Act. Along with other New Deal legislation, it served to prolong the depression. Such laws increase the numbers at the unemployment office, and it is unskilled young workers especially who bear the brunt.

So a person wants to work and an employer wants to hire—they settle on a wage rate and away they go. Why must the government get in the middle and dictate a minimum wage?

The fact is, when government sets the price of anything above the market price, the demand for that good or service necessarily falls. This decline in demand for labor hits the young, unskilled and minority populations hardest. Last November the unemployment rate for blacks was double the rate for whites (11 per cent vs. 5.2 per cent), while Hispanic unemployment was 7.4 per cent. In 2000, when the overall unemployment rate in the United States was 4 per cent, the unemployment rate for teenagers was 13.1 per cent—but black teenage unemployment was 29 percent. 

As economist Murray Rothbard wrote in Power and Market, “Compulsory unemployment is achieved indirectly through minimum wage laws. On the free market, everyone’s wage tends to be set at his discounted marginal value productivity. A minimum wage law means that those whose DMVP is below the legal minimum are prevented from working. The worker was willing to take the job, and the employer willing to hire him. But the decree of the State prevents this hiring from taking place.”

Just how high does PLAN think the minimum wage should be? It is not clear from reading their report “Working Hard, Living Poor.” Oregon’s $6.50 is mentioned, $6.65 is mentioned, as well as $7.03 per hour. But, why is PLAN being so chincy? Why don’t they propose a minimum wage of $100 per hour, or for that matter, of $1,000 per hour?

It’s obvious why the folks at PLAN don’t pursue their own logic: If they did, virtually the entire workforce would be unemployed. The folks at PLAN (as with all minimum wage proponents) are shrewd enough to stop their minimum wage demands at a point where only marginal workers are affected, and there is no danger of disemploying senior union workers.

Why would PLAN be carrying the water for the unions? Among PLAN’s member organizations are: AFL-CIO of Nevada, Culinary Works Union Local #226, H.E.R.E local #86, Laborers International Union of America #169, Nevada Service Employees SEIU local #1107, Operating Engineers Local 3, State of Nevada Employees Association, and the Nevada State Education Association.

Why do union leaders push for PLAN’s minimum wage boost? It’s not that their members earn minimum wage and so would see an immediate increase in wages. Rather, they know a higher minimum wage will permanently displace younger, marginal non-union workers from the labor force. The wages of union workers then increase, due to the absence of competition.

As Rothbard wrote in Making Economic Sense, “When we see that the most ardent advocates of the minimum wage law have been the AFL-CIO, and that the concrete effect of the minimum wage laws has been to cripple the low-wage competition of the marginal workers as against higher-wage workers with union seniority, the true motivation of the agitation for the minimum wage becomes apparent.” 

Inflation (as measured by the CPI) has reduced the real effect of the 1996 minimum wage increase by 14 per cent. Partially because of this, unemployment rates have remained relatively quiescent, spurring the unions to agitate for an increase.

The last thing Nevada employees and employers need is for state government to intervene in their wage negotiations. Despite their do-gooder rhetoric, the PLAN gang is not looking out for working families. They are looking to decrease competition for their union members.

Doug French is executive vice president of a Southern Nevada bank and a policy fellow of the Nevada Policy Research Institute.