Paul R. Hollrah, O.E.
In January 2009, as Obama
unveiled his plans for economic recovery, he assured the Congress and
the American people that, if we would just agree to set up a $787
billion slush fund for him to play with, he would fix our sick economy
and that the unemployment rate would never exceed 8 percent. With a
straight face, and with words that came straight from his teleprompter,
he vowed that he would accomplish something that no man, and no
government, has ever accomplished before: he would halt the downward
spiral of the economy and stimulate economic growth, and he would do it
all with borrowed money.
Democrats in Congress gave
him what he asked for. By June 2009, just five months later, the
unemployment rate was at 9.5
percent, and by mid-October it stood
at 9.8 percent, the highest level since 1940 during the Roosevelt
Administration. But what is most curious about current discussions of
our economic plight is that no one, Democrat or Republican, ever seems
to mention one of the greatest contributing factors to unemployment… the
The first attempt at establishing a minimum hourly wage occurred in
1933, during the early years of the Great Depression, when Roosevelt’s
National Industrial Recovery Act set a minimum wage standard of $0.25
per hour. However, in a 1935 court decision (Schechter Poultry Corp. v.
United States), the United States Supreme Court found the act to be
The Roosevelt Administration made a second attempt in 1938 with the
federal Fair Labor Standards Act. The minimum wage was again set at
$0.25 per hour and that legislation has withstood the test of time.
Whether Democrats conceived the idea of a minimum wage as an economic
tool with which to buy the votes of those at the bottom rung of the
economic ladder, or if the potential political benefits occurred to them
as an afterthought, we may never know. What we do know is that, since
its inception, the minimum wage has been a political football, a major
factor in business economics and government social engineering.
Contrary to opinions on the political left, the minimum wage was never
intended to provide a living wage for a head of household; its purpose
was to provide a wage floor, preventing unskilled and entry-level
workers from being exploited unfairly by unscrupulous employers.
However, it did not take long for the leaders of organized labor to
figure out that, by exerting constant upward pressure on the minimum
wage, the "trickle-up” effect on the higher wage brackets made
non-economic wage demands in the skilled trades much easier to sell. And
while liberals and labor leaders insist that the minimum wage has little
or no impact on overall employment, they tend to ignore the impact of
the minimum wage on the availability of entry-level jobs… the tens of
millions of jobs at which teenagers and unskilled workers begin to learn
the work ethic and the economic realities of the capitalist system.
Most liberal apologists for "progressive” social engineering have
claimed that increases in the minimum wage have little, if any, effect
on overall employment statistics. However, in spite of what leftists may
say, numerous studies show that increases in the minimum wage do have a
significant impact on overall employment… particularly on the
availability of entry-level jobs.
In a study
titled, "The Effect of the Minimum Wage on Covered Labor Demand,” Dr.
Walter J. Wessels of North Carolina State University, a leading expert
in labor-management relations, agrees with most studies on the subject.
His study finds that, "for
every 10 percent increase in the minimum wage, overall employment
decreases by 0 to 2 percent. It finds a stronger effect for covered
(entry level) employment: a decrease in covered employment ranging from
4 percent to 5 percent.”
The U.S. national minimum wage was held at $5.15 per hour from 1997
until 2007, perhaps because even liberal politicians were finally
willing to admit, grudgingly, that businessmen, especially small
business owners, must look very closely at their overall labor costs and
that an increase of $0.75 or $1.00 per hour in the minimum wage could
have a major impact on the number of minimum wage jobs that a given
employer might have available.
However, after gaining control of both houses of Congress in 2006,
Democrats made a major push in 2007 for the largest increase in the
minimum wage in many decades, a forty percent increase from $5.15 per
hour to $7.25 per hour. And although the effort was strongly opposed by
Republicans and by the Bush Administration, on the grounds that such a
large increase would have a damaging impact on an already faltering
economy, congressional Democrats attached the minimum wage increase to
an Iraq War funding measure and the president was forced to sign it.
The minimum wage went from $5.15 per hour to $5.85 per hour in July
2007, from $5.85 to $6.55 in July 2008, and from $6.55 to $7.25 per hour
on July 24, 2009. Bearing in mind that increases in the unemployment
rate lag increases in the minimum wage by a year or more, a comparison
between the two shows a clear corollary:
1999 Minimum Wage: $5.15 per hour Unemployment Rate: 4.2 percent
2000 Minimum Wage: $5.15 per hour Unemployment Rate: 4.0 percent
2001 Minimum Wage: $5.15 per hour Unemployment Rate: 4.7 percent
2002 Minimum Wage: $5.15 per hour Unemployment Rate: 5.8 percent
2003 Minimum Wage: $5.15 per hour Unemployment Rate: 6.0 percent
2004 Minimum Wage: $5.15 per hour Unemployment Rate: 5.5 percent
2005 Minimum Wage: $5.15 per hour Unemployment Rate: 5.1 percent
2006 Minimum Wage: $5.15 per hour Unemployment Rate: 4.6 percent
2007 Minimum Wage: $5.85 per hour Unemployment Rate: 4.6 percent
2008 Minimum Wage: $6.55 per hour Unemployment Rate: 5.7 percent
2009 Minimum Wage: $7.25 per hour Unemployment Rate: 9.8 percent
This is not to suggest that the doubling of the unemployment rate from
4.6 percent to 9.8 percent over a three year period is all due to a
forty percent increase in the minimum wage. However, Professor Wessels’
findings would suggest that a forty percent increase in the minimum wage
would result in the loss of as many as 12.3 million jobs in a civilian
workforce of some 154.5 million over a three year period.
But the greatest damage is done in the number of jobs that are never
created because of the significant increase in the minimum wage. Prof.
Wessels suggests a 4-5 percent decrease in the number of available
minimum wage jobs for each ten percent increase in the minimum wage.
Needless to say, it is nearly as problematic to estimate the number of
jobs that were never created because of a forty percent increase in the
minimum wage, as it is for Obama to take credit for the number of jobs
saved by hundreds of billions of dollars of mostly wasted federal
spending. These are things that no one can possibly know, or even
estimate with any degree of certainty.
What is important for the American people to understand as we approach
the 2010 mid-term elections is that the concern over joblessness shown
by the Obama Administration and their Democratic friends in Congress is
pure "flim-flam.” Their unemployment concerns cannot be taken seriously
when the Democratic Party and Democratic administrations have an
unbroken record for killing millions of jobs through uneconomic
increases in the minimum wage.
When teenagers can’t find summer jobs to save money for college, and
when young married couples need second jobs to make ends meet, but can’t
find them because they’ve been killed off by uneconomic, politically
motivated, increases in the minimum wage, they should know where to
place the blame.