The Public Policy
Meyerson, Adam
"The Public Policy" At the February convention of the AFL-CIO in Bal Harbour, Florida, President George Meany found time, in between eating steak, riding around in liveried limousines, and otherwise bemoaning the sorry...
...Meany's at this time—and even more to be said against it, especially without a teenage differential...
...30%)—but Yale Brozen and others have been able to establish unmis-, takable connections between increases in the minimum and increases in unemployment among teenagers, especially blacks...
...hut, at present, we have no way of doing this...
...So far, rises in the minimum have tended to affect small percentages of the labor force (ranging recently from 8% to 17%) and have been small enough (usually in the neighborhood of 1% of total payroll costs) that employers could adjust to the new wages without cutting back much employment...
...Without a doubt, a $3.00 minimum would be disastrous for teenagers unless there were a differential...
...Meany has nevertheless argued strongly against a differential minimum, and to date either his arguments or his clout have swayed Congress...
...The labor force participation rate of black teenagers not enrolled in school has already plummeted from 78.2% in 1950 to 60.1% in 1972...
...Department of Labor are very much influenced by, if not beholden to, the most important of their labor constituents...
...Meany's proposal is therefore odd, because economists tell us that rises in minimum-wage rates and extensions in minimum-wage coverage increase unemployment, at least temporarily, and hit marginal workers—old workers, teenagers, and black teenagers in particular—the hardest...
...And if he does, when he is eating steak at the next ;AFL-CIO convenHon, there is a good chance, other things being equal, that the economy will ivc him more cause to moan...
...Where Congress might have made a mistake, however, is in its persistent refusal to establish a lower minimum wage for teenagers...
...A worker earning the minimum wage for an entire year still receives some $700 less than the federal poverty level for a family of four...
...Unfortunately, economists can tell us very little about this first question...
...Between 1948 and 1968 (a period in which the hourly minimum wage rose from 40 cents to $1.60) teenage unemployment jumped from 9.2% to 12.7% and from 3.2 to 5.5 times the unemployment rate of adults over twenty-five...
...Increases in the minimum have been minor relative to overall wages, and so long as they remain small we need not fear employment problems even approaching those of Puerto Rico...
...The Ford Administration and the Congress think the problem is so serious that they are willing to countenance wildly inflationary budget deficits to alleviate it...
...On the other hand, he contends that a differential would violate a principle sacred to the labor movement—"equal pay for equal work...
...Unemployment is now the worst it has been since the Depression, it is particularly terrible among black teenagers (36.7%), and, my introductory cheap shot notwithstanding, the AFL-CIO and other unions have performed valuable services in addressing public concern to the seriousness of the problem...
...In 1938, prevailing wages on the island were only half the newly-prescribed 25-cent minimum, and the new law drove so many Puerto Ricans out of work that it wreaked absolute havoc on the island economy...
...Meany's proposal...
...Meany to make it...
...Teenagers are generally unskilled and inexperienced, are perceived as being unreliable, and have high turnover rates...
...Opponents of minimum-wage laws originally feared they would lead to widespread general unemployment, but there has been little evidence yet to justify this fear...
...Meany has proposed is that it would be dangerous...
...It would affect far more workers than previous increases, it would come too soon after a 40-cent increase last year, and at a time like this it would seriously aggravate the impact of a recessionary economy on worker layoffs...
...Meany's proposal will most likely provoke, the major disagreements will center over the timeliness and size of the increase and the possibility of a differential minimum for teenagers...
...Government might not do exactly what the AFL-CIO wishes, but as befits a polity characterized by interest-group pluralism, both a majority of Congressmen and the U.S...
...Minimum-wage increases may not have unilaterally cured the problems of poverty and they may have plunged some marginal workers into deeper poverty, but, overall, they have helped far more workers and their families than they have hurt...
...Meany's position...
...He called for a rise in the national minimum wage from the present hourly rate of $2.10 ($2.30 as of next year) to $3.00...
...The first is that, by mere virtue of its having been made by the head of our most important labor union, his call is likely to attract considerable attention and support...
...Nor can they tell us much about the benefits in earning power for any given increase...
...Now the point is that Congress has not similarly had good reason to admit it made a mistake for the rest of America...
...Congress can select the minimum wage only on the basis of hunches...
...What then can we say about Mr...
...Thus, while economists point out that employment would have risen still further in the absence of increased minimums, they are hard pressed to say how much further, and it seems clear the the minimum-wage law has so far been fulfilling its stated intent of maintaining a minimum standard of living for workers "without substantially curbing employment or earning power" (my emphasis...
...I repeat, particularly youth unemployment...
...The focus of debate on minimum-wage laws has therefore shifted...
...The Nixon Administration proposed such a differential minimum for this country, but the measure was steadfastly opposed by the AFL-CIO and defeated in Congress...
...It would deny many teenagers, particularly black teenagers, the work experience they need to acquire skills and habits necessary for their adult work...
...in the same period nonwhite teenage unemployment jumped from 11.2% to 24.9% and the ratio of black to white unemployment among teenagers went up from 1.3:1 to 2.2:1...
...At the February convention of the AFL-CIO in Bal Harbour, Florida, President George Meany found time, in between eating steak, riding around in liveried limousines, and otherwise bemoaning the sorry state of our economy, to make a proposal...
...In perhaps the most sophisticated statistical analysis yet of the subject, a recent Rand Corporation paper by Finis Welch estimated that the cumulative effect of increases in the minimum from 1956 to 1968 reduced the ratio of teenage to adult employment by 15% from what it would have been in the absence of those increases...
...Indeed, professional agreement on this point is astonishing: from Paul Samuelson to Milton Friedman to Lloyd Reynolds virtually all economists, exceptfor some in the employ of the AFL-CIO and the Department of Labor, find theoretical basis and empirical evidence for a correlation between unemployment—particularly youth unemployment—and minimum-wage increases...
...Moreover, minimum-wage legislation cannot properly be considered apart from the overall context of government poverty and welfare programs...
...The damage was so great that Congress, which is always reluctant to confess error, soon admitted it had made a mistake, and minimums have since been set separately and on a different basis for Puerto Rico...
...It is likely that many younger workers refuse to take what they consider to be degrading jobs even at wages above the minimum wage, and therefore that much unemployment reflects cultural attitudes far more than wage legislation or even than the strength of the economy...
...Meany is more likely than not to get most of his way again...
...Such a rise would threaten more than just the teenage unemployment rate...
...On the one hand, he fears that a differential would shift unemployment from teenagers to older workers, often with dependents, who can less afford it...
...These arguments overlook the fact that, in employers' eyes, work done by teenagers is often not equal to that done by adults, but there is a germ of truth in Mr...
...There are two significant features in Mr...
...Virtually every country in the industrialized world (Germany and Italy are an interesting pair of exceptions) has some form of minimum, and a majority of American businessmen polled recently by the Conference Board favor the principle...
...We can also say that Mr...
...And accordingly, minimum-wage laws, like most labor policies, substantially reflect the direction, if not the full scope, of AFL-CIO proposals...
...And although critics point out that the average family has 1.5, not one, wage-earners, and their combined income would be above the poverty level, the argument that the working poor should be favored over those on welfare has always been used to support increases in the minimum, even if some workers are thereby driven to welfare...
...The second feature in this latest minimum-wage proposal is that it is a very odd time for Mr...
...In the coming discussion which Mr...
...Very few now question the principle of a minimum, a far cry from half a century ago, when the Supreme Court declared it unconstitutional...
...And the frustration it would engender would accelerate the growing teenage disenchantment with the idea of seeking work...
...They can tell us that there is a correlation between increases in the wage minimum and unemployment, and they can tell us that so far little damage has been done, but they cannot predict how many jobs will be lost from any given increase...
...Although we do not know as much as we should on these matters, we can make an educated guess that there is much to be said for an increase like Mr...
...To look at these figures alone is to overtook the importance of demographic considerations—substantial teenage unemployment would have occurred even without increases in the minimum because the teenage labor force grew much faster in this period than overall employment (49% vs...
...Conceivably, replacing the minimum wage by a negative income tax with work incentives (such as the ill-fated Family Assistance Plan) would offer the income benefits of current legislation without the setbacks •to employment...
...Ever since Sidney Hillman of the Congress of Industrial Organizations was the prime mover behind the Fair Labor Standards Act of 1938, which set the first federal minimum wage at 25 cents an hour, the AFL-CIO has been the chief motivating force in setting minimum-wage policy...
...011 the basis of similar evidence, Canada, Japan, and other countries have established separate wage minimums for teenagers which are lower than the standard minimum...
...In this, the continental American experience may be profitably contrasted with that of Puerto Rico...
...All this discussion of minimum wages is complicated by evidence that many teenagers and some adults are affected much less by official wage minimums than by what Edward Banfield has called "informal minimums...
...Many available low-wage jobs—e.g., cabdriving or hotel service—go unfilled even with today's dismal employment picture, and the astonishing number of immigrants, legal and illegal, who have found jobs in America despite language and other handicaps suggests that many jobs are here for the takers...
...My hunch about an increase on the order that Mr...
...It would be helpful in choosing an optimum minimum wage if we could compare the total increased earning power of workers who benefit from any given increase with the total loss of income suffered by those workers priced out of the market...
...Employment has risen every year but one during which the federal minimum wage has been raised—and that one exception was in a recession...
...The minimum wage will be considered not in the context of an optimum socioeconomic order but on its own...
...Economists could help us by determining how often teenagers do "adult" work and how many adultworkers would be displaced by a teenage differential...
...employers tend not to want them and therefore not to pay them as much as adults, and for various reasons, including prejudice, black teenagers are desired and paid least of all...
...Meany's proposal...
...But, as is usually the case with public policy decisions, the next minimum-wage debate will take place without an evaluation of the more general policy framework within which it properly fits...
...For there is considerable evidence that continued increases in the minimum wage have priced many teenagers, especially black teenagers, right out of the labor market...
...As I suggested earlier, economists can contribute much more definitively to our discussion of the second question...
Vol. 8 • May 1975 • No. 8
