Minimum Conditions for Biden’s Minimum Wage
Paired with real efforts to address youth unemployment, a minimum wage hike would not be as disruptive as free-marketers fear.
An increase in the federal minimum wage from $7.25 an hour to $15.00 an hour is said to be part of the initial program of the Biden administration. This change is not as drastic as it would seem; few workers (only 2 percent of wage earners, a decline from 13 percent in 1980) receive hourly pay as low as the federal minimum wage, most states (30 of 50) have higher minimums, 23 of them over $10.00 and the increase will undoubtedly be phased in over a period of years—a House bill proposed phasing it in by 2025.
The major effect of an increase is not felt among the lowest wage-earners but by those somewhat above them, since experienced workers generally expect to be paid more than neophytes receiving the minimum. The fact that such a small percentage of workers receive the minimum suggest that the level needs adjustment. According to the Federal Reserve Bank of St. Louis, compensation of wage-earners as a percentage of gross domestic income fell from 52 percent in 1970 to 43 percent in 2019. It has been estimated that 53 percent of minimum wage recipients are younger workers. There are many studies, few of them disinterested, on the employment effects of minimum wage increases. The preponderance of them suggests that a 10 percent increase in the minimum wage will produce a 1 percent to 2 percent drop in the number of employed younger workers or a loss of perhaps 200,000 jobs nationally.
The extent of job loss is a question of fact, not, as the more simple-minded free market economists suggest, purely one of theory. There is a division between economists who believe that mathematics is the neighboring discipline to economics and those who, more conscious of “the crooked timber of humanity,” look to more imprecise history and social psychology as the neighboring disciplines. Initial low-wage employment assures a supply of the managers who are needed later, and may help breed consumer loyalty. There is also a conservative case for minimum wage laws. John Stuart Mill in his Principles of Political Economy pointed out that where government aid to low-income workers exists (as with the food stamp, Medicaid and housing programs), absent a minimum wage, it operates as a subsidy to low-wage employers by assuring the subsistence of their workers. Judge Learned Hand suggested that it, “gives us hope of meeting its cost by increased efficiency … A means of ascertaining who…is fit to survive without mingling the fit and unfit in a vague class half fed and half educated.”
The youth unemployment that provides the strongest case against minimum wage increases is sometimes sought to be mitigated by establishment of sub-minimum wages. This is vehemently opposed by organized labor, and their complexity and short duration assures that few employers avail themselves of them; only a handful of large employers and virtually no small ones do so. There is a better way of assuring that the minimum wage increases that Biden proposes do not have adverse effects on society.
Workers under the age of 25 might be excused from payroll taxation, as in Germany and more recently in Poland and Croatia, a uniform and self-executing measure that would be far less expensive than the 2 percent across-the-board payroll tax holiday temporarily enacted by the Obama administration as an economic stimulus measure, and younger workers might also be given access to the U.S. Employment Service, now an almost moribund agency under the Department of Labor as the “Employment & Training Administration” mostly serving recipients of unemployment insurance. Employers are scarcely likely to discharge experienced workers when they turn 25 to save $2.25 an hour in taxes, given the cost of recruiting and training new workers and the increased unemployment insurance premiums that would be assessable to them under the experience-rated premium systems in most states.
The level of youth unemployment is the great undiscussed issue in American politics. It is potential social dynamite. The effect of similar percentages in France is already visible. American youth are not politically minded and do not habitually either vote or demonstrate, hence the relative calm here until the BLM and pro-Trump demonstrations. Meanwhile, German politicians have never forgotten that the young unemployed of the Weimar period fueled totalitarian movements; in the early 1930s, Chancellor Heinrich Bruning and the then British ambassador, Sir Horace Rumbold, saw no cure for Germany’s political distempers save an increase in the voting age.
The impact of our youth unemployment is felt in quieter ways: the lack of development of work habits, disciplines, and skills, and the diversion of the unemployed to substance abuse and the underworld. This is notoriously a problem of our inner-cities, whose street corners are ruled by drug gangs, but increasingly that of declining rural areas also. Former Governors Shumlin of Vermont and Pence of Indiana have spoken of the ravages of the opioid and methamphetamine epidemics on their relatively rustic states. It is not for nothing that President Franklin Roosevelt warned that “continued dependence upon relief induces a spiritual and moral disintegration destructive to the national fiber. To dole out relief in this way is to administer a narcotic, a subtle destroyer of the national spirit.”
It is a problem that, more than racial discrimination, was at the root of the BLM disorders, which were not limited to black Americans, but reflected the increased idleness of all youth exacerbated by the Coronavirus closings, here and abroad. The same may also be true of a different segment of youth participating in the pro-Trump disorders in Washington on January 6.
The extent to which the Obama administration acquiesced to a lost generation in our large cities and declining rural areas was scandalous. The only sentence in the dispiriting 2012 Republican convention which resonated was Paul Ryan’s reference to the unemployed youth reclining idly in his parents’ basement looking at a fading Obama poster. In addition to relieving young workers from payroll taxes, the President Biden can at least partially disarm many of his critics if he follows Roosevelt’s example and makes proposals to deal with youth unemployment almost his first order of business. The first Civilian Conservation Corps (CCC) camp was opened barely three months after Roosevelt’s inauguration.
A notion of reciprocity of obligation, rather than a dole, underlaid the youth employment programs of the New Deal, most notably the CCC, organized by Gen. George Marshall, where he made his reputation, in which millions of young men received work-readiness training in exchange for unskilled or semi-skilled labor on projects of a type that are still needed: soil conservation, flood control, reforestation, land reclamation of deep and strip mines, and the creation of new national parks and trails in Appalachia and the South. These “shovel-ready” tasks were invisible to the Obama administration.
Democrats have proposed marginal increases in existing federal youth jobs programs These are “feel-good” proposals, unrelated to the dimensions of the problem, which do not heed Marshall’s admonition to his subordinates: “Avoid trivia.” They are dwarfed by the CCC, which, though adopted when the nation was less rich, was informed by a sense of moral urgency, and employed some half a million workers at a time in a nation with 40 percent of our present population.
The unspoken hope, doomed by the virus crisis, is that the economy will improve and a rising tide will lift all boats; in the meantime there are, for those eligible, food stamps and an ever-lengthening period of unemployment benefits. The lengthening of the “dole” period threatens to create a white underclass resembling that in modern Britain.
Efforts to incentivize youth employment in the private sector such as the targeted tax credit, however beautiful in theory, have foundered on their unintelligibility, on restrictions and complexities imposed at the behest of organized labor, and on their lack of benefit to smaller businesses, where the greatest opportunities for unskilled and semi-skilled jobs exist
The German response to this problem, which has produced youth unemployment rates half of ours has taken the form of government forgoing the payroll taxes on young workers, together with subsidies for employers providing half-time employment, and distance and other learning opportunities tailored to employer needs. The per-capita costs of such a system are relatively modest. The cost of 15.3 percent in forgone payroll taxes on 20 hours a week of earned income at the minimum wage amounts to about $1,300 per worker per year. A 50 percent wage subsidy paid to the employer as a refundable tax credit or otherwise would cost less than $5,000 per half-time worker per year.
These measures, embodied in uniform and simple tax rules, would send a message to the whole society, not just those parts of it patronized by the youth jobs bureaucracies. The employment provided would be low-wage work, but austerity is better than idleness for the young.
It also would not hurt to raise the low ($7,000-$10,000) wage bases on which federal and state unemployment taxes are levied; these fall disproportionately heavily on low-wage workers and the companies employing them. The disgraceful organized-labor-induced prohibition on the employment of “helpers” on federal construction projects under Davis-Bacon Act regulations should also be repealed.
This is also a place here for the bully pulpit, unused by Presidents Biden and Trump. It is doubtful that our nation’s large companies are acting prudently by failing to recruit younger workers. This kills the seed corn; moreover, the opportunity to recruit competent and motivated young workers is greater when jobs are scarce.
Today’s youth unemployment numbers are a threat to the nation’s future political and social welfare. They should be depicted as such and addressed accordingly.
George Liebmann is the author of numerous books on law and politics, most recently Vox Clamantis In Deserto: An Iconoclast Looks At Four Failed Administrations (Amazon: 2021) and America’s Political Inventors (Bloomsbury: 2019).