Arkansas voters will have a chance on Tuesday to approve a minimum-wage increase from $8.50 to $11 per hour by 2021. On the surface this may sound great, but minimum-wage increases come with unintended negative consequences and a dark past of forcing minorities and women out of the work force.
During the Progressive Era (roughly 1890 to 1920), the minimum wage was championed as a way to benefit white workers and to harm "undesirable" immigrants from southern and eastern Europe. As described by Princeton historian Thomas Leonard in Illiberal Reformers, the goal of these proponents was to increase "the cost of hiring unskilled labor," thus ensuring that "fewer unskilled workers would be employed." According to these "progressive" reformers, "the minimum wage detected the inferior employee, whether immigrant, female or disabled, so that he or she could be scientifically dealt with." Many Americans in the early 20th century wanted to exclude newly arrived immigrants, women, and other minorities from the work force, and minimum wage was successfully implemented in 15 states by 1923.
Several years later, during the Great Depression, minimum-wage supporters had the reprehensible goal of stopping African Americans from taking white union-workers jobs. Union leaders didn't want African Americans to offer their labor to employers more cheaply than white workers. Notable economist Walter Williams recorded in the Washington Examiner that the arguments for the 1931 Davis-Bacon Act included complaints about the "low-paid colored mechanics" getting work. The act outlawed hiring cheap labor for federal projects. It was a precursor to the first national minimum-wage law in 1938.
Nobel Prize winning economist Milton Friedman summarized the negative effects of minimum-wage laws when he emphasized in an interview on The Open Mind that "the people who are hurt the most by minimum laws are the blacks." Friedman believed that mandating a minimum wage was the most anti-black law on the books.
Most casual supporters of minimum-wage hikes don't fully consider consequences. They simply believe it will decrease poverty. When people have conflicting opinions, it usually helps to look at the evidence.
There is no consensus among researchers studying the effects of minimum wage on employment. A famous study in the American Economic Review by David Card and Alan Krueger found that minimum wage didn't affect employment. The majority of other studies find different results. A study by Charles Brown, Curtis Gilroy, and Andrew Kohen in The Journal of Economic Literature surveyed the findings and concluded that a 10 percent increase in the minimum wage is associated with a 1 to 3 percent decrease in teenage employment.
A more recent survey of the literature by David Neumark and William Wascher for the Institute of the Study of Labor found that the "sizeable majority" of studies correlate increases in minimum wage with increases in unemployment. A 2011 study by William Even and David Macpherson for the Employment Policies Institute had 600,000 observations and found minimum-wage increases caused disparate harm to African Americans. A 10 percent increase in the minimum wage resulted in a 6.5 percent decrease in African-American employment.
Note that Arkansas is proposing to increase its minimum wage from $8.50 to $11, or almost 30 percent. This is a very big jump. The model by Even and Macpherson would predict a decrease of black employment of 19.5 percent. Researchers have not studied such a big increase, though--because it's never been tried.
The current Arkansas economy appears strong. The Bureau of Labor statistics says our unemployment rate is at 3.6 percent. But we also have a lower labor-force participation rate than 45 other states at 57.5 percent. If plenty of jobs are available at acceptable wages, eliminating the possibility of low-paying jobs may not have much effect.
Booming economies don't boom forever. When the economy slows or stagnates, $10-per-hour jobs are better than no job. Do we really want to make $10-per-hour jobs illegal in the entire state of Arkansas?
The original proponents of the law wanted to eliminate that right for certain groups of people. They believed that by making the less-skilled workers more expensive, employers would be more likely to hire white native males. Arkansans should weigh the benefits and costs of increasing the minimum wage carefully to make sure we aren't accidentally doing the exact thing. Some workers will get a raise to $11, while others will get a pay cut to $0. We can't say what the exact numbers are, but voters should have this tradeoff in mind.
Dr. Thomas Snyder is an associate professor of Economics at the University of Central Arkansas and a scholar affiliate with the Arkansas Center for Research in Economics (ACRE). Dr. Marcus Witcher is an ACRE scholar in residence and a visiting assistant professor of history at UCA. All views are their own and are not intended to represent UCA.
Editorial on 11/01/2018