[Congressional Record Volume 142, Number 54 (Wednesday, April 24, 1996)]
[House]
[Page H3790]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                              {time}  1800
           ECONOMIC REPERCUSSIONS OF INCREASING MINIMUM WAGE

  The SPEAKER pro tempore. Under a previous order of the House, the 
gentleman from Michigan [Mr. Smith] is recognized for 5 minutes.
  Mr. SMITH of Michigan. Mr. Speaker, I would like to make some 
comments on how we should increase wages of workers in this country and 
how we should not increase those wages.
  The debate over the minimum wage is a debate really about the 
fundamental principles of government and how our society is to be 
organized. Unfortunately, the debate has been framed in terms of 
politics rather than policy. In light of this, I would like to make 
three points:
  First, historically it has been well noted by many economists, 
Frederich Bastiat pointed out in 1853 that a just government would not 
interfere in a person's right to contract with someone else for his or 
her labor services.
  Now, what this minimum wage legislation will do is tell, for example, 
a senior that wants to work part-time at maybe a day-care center, and 
48.5 percent of those receiving minimum wages are voluntary part-time 
workers, that she or he cannot work if the day-care center cannot 
afford to pay $5.15 per hour.
  It says to the black teenager that he cannot try to get a first job 
and learn a skill if that employer cannot pay $5.15 per hour, and if 
his services are not worth that at the beginning of his employment, 
prior to training, then he will not have that opportunity.
  Those who would support the minimum wage must hold the position that 
government can tell you at what rate you can sell your labor. So here 
is a Federal law saying you cannot work, you cannot sell your labor, 
for less than what the Federal Government mandates is a fair wage.
  This is not consistent with a just society or the freedom of 
individuals.
  Second, an increase in the minimum wage is really going to harm the 
poor. Increasing the minimum wage must result in some workers being 
laid off. So the question is, are we going to pass a law that helps 
some, because some will benefit from an increase in minimum wage, while 
at the same time telling a few of those who are no longer going to be 
employed that they cannot be employed because the employer will not pay 
them the higher minimum wage that is contemplated to be established?
  It is just a matter of how many jobs will be lost. Assuming no job 
losses is equivalent to assuming a perfectly inelastic demand for 
unskilled labor, which clearly is not the case.
  This is just a quick effort to represent the supply and demand for 
the market for unskilled, entry level jobs. If you have the demand 
curve going down; in other words, the higher the wages, the less number 
are going to be employed, and so as the demand curves down to a lower 
wage and a greater number being employed, and likewise the supply is 
going to increase so the higher the wages the more people that are 
going to be looking for those jobs, you end up at the intersection with 
what is the equilibrium wage. If we raise the minimum wage higher, that 
means this change will represent that number of people that are going 
to no longer be employed.
  It just makes sense that there are some people in our society at the 
beginning that will no longer be able to be employed if we raise the 
minimum wage up to $5.15 an hour. But increasing the minimum wage will 
not make any dent in the poverty rate. Of the 23.5 million adults in 
poverty, just over 2 percent are working for the minimum wage. 
Increasing the minimum wage will cost the unskilled their job 
opportunities.
  Professors Neumark and Wascher, in their paper in Industrial and 
Labor Relations Review, estimate a 90-cent increase in the minimum wage 
will destroy more than one-half million unskilled jobs.
  Now, an increase in the minimum wage of 90 cents will raise prices by 
an estimated 2.2 billion, and those price increases will mostly affect 
poor people. This price rise will come about because some small 
businesses in competitive industries will go out of business or produce 
less. This decrease in supply will show up in the form of higher prices 
for the goods and services produced in low wage industries, and who 
buys their goods in stores are certainly the poor people. The wealthy 
are not going to lose their jobs or their businesses.
  The way to increase wages is to cut the payroll taxes, cut the 
capital gains tax, balance the budget, make sure we do not have an 
increase in inflation, increase the skills of the future work force and 
current work force, and enact significant regulatory reform.
  The debate over minimum wage is a debate about the fundamental 
principles of government and how our society is to be organized. 
Unfortunately, the debate has been framed in terms of politics rather 
than policy. In light of this, I'd like to make three points.
  First, as Frederich Bastiat pointed out in 1853, a just government 
would not interfere in a person's right to contract with someone else 
for his or her labor services. What this minimum wage legislation will 
do is to tell the senior that wants to work part-time at the day care 
center, and 48.5 percent of minimum wage workers are voluntary part-
time workers, that she cannot work if the day care center cannot afford 
to pay her $5.15 an hour. It says to the black teenager that he cannot 
try to get a first job, and the training that will go along with it, 
unless he can produce $5.15 per hour worth of services. Those who would 
support the minimum wage must hold the position that the government can 
tell you at what rate you can sell your labor services. This is not 
consistent with a just society of free individuals.
  Second, an increase in the minimum wage will harm the poor. 
Increasing the minimum wage must result in workers being laid off and 
fewer job opportunities. It is just a matter of how many jobs will be 
lost. Assuming no job losses is equivalent to assuming a perfectly 
inelastic demand for unskilled labor, which clearly is not the case. 
Those that wish to increase the minimum wage assume that a majority of 
the Congress with the approval of the President may decide that those 
who lose their jobs, or are denied their first job, must suffer this in 
order to make others better off. But increasing the minimum wage will 
not make any dent in the poverty rate. Of the 23.5 million adults in 
poverty, just over 2 percent are working at minimum wage. And 
increasing the minimum wage will cost the unskilled their job 
opportunities. Professors Neumark and Wascher, in their paper in 
Industrial and Labor Relations Review, estimate a 90-cent increase in 
the minimum wage will destroy more than one-half million unskilled 
jobs. The unemployment rate among black teenage males is currently 
greater than 38 percent, while the national rate for adult males is 5 
percent. Who is likely to suffer from the loss of low-skilled jobs?
  An increase in the minimum wage of 90 cents will raise prices by $2.2 
billion. This price rise will come about because some small businesses 
in competitive industries will go out of business or produce less. This 
decrease in supply will show up in the form of higher prices for the 
goods and services produced in low-wage industries. And who buys their 
goods at stores staffed by people making minimum wage? Who buys food at 
restaurants that hire first-time workers? The wealthy are not going to 
suffer from the higher prices. The wealthy are not going to lose their 
jobs or their business because of an increase in the minimum wage. But 
the poor, unskilled, job-seeker, and the small business owner on the 
edge of making it will suffer. How can we as a Congress claim that we 
can make the decision that these people must suffer in order for some 
other people to gain? It is time to admit that this increase in the 
minimum wage is an unjust interference of the Government in the lives 
of the working poor which will cause more harm than good.

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