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Saturday, June 15, 2024
HomePolicyRuinous ‘Compassion’: Oakland Living Wage Hike Devastating Businesses

Ruinous ‘Compassion’: Oakland Living Wage Hike Devastating Businesses


Oakland’s new minimum wage law has confused immigrant businesses in Chinatown, several of which have shut down because they can’t pay the new rate of $12.25 per hour. (Photo: Tim Hussin/SFChronicle)

It is fascinating to see brilliant people belatedly discover the obvious — and to see an even larger number of brilliant people never discover the obvious.

A recent story in a San Francisco newspaper says that some restaurants and grocery stores in Oakland’s Chinatown have closed after the city’s minimum wage was raised. Other small businesses there are not sure they are going to survive, since many depend on a thin profit margin and a high volume of sales.

At an angry meeting between local small business owners and city officials, the local organization that had campaigned for the higher minimum wage was absent. They were probably some place congratulating themselves on having passed a humane “living wage” law. The group most affected was also absent — inexperienced and unskilled young people, who need a job to get some experience, even more than they need the money.

It is not a breakthrough on the frontiers of knowledge that minimum wage laws reduce employment opportunities for the young and the unskilled of any age. It has been happening around the world, for generation after generation, and in the most diverse countries.

It is not just the young who are affected when minimum wage rates are set according to the fashionable notions of third parties, with little or no regard for whether everyone is productive enough to be worth paying the minimum wage they set.

You can check this out for yourself. Go to your local public library and pick up a copy of the distinguished British magazine “The Economist.”

Whether it is the current issue or a back issue doesn’t matter. Spain, Greece and South Africa will be easy to locate in the table near the back, which lists data for various countries. Just look down the unemployment column for countries with unemployment rates around 25 percent. Spain, Greece and South Africa are always there, whether or not there is a recession. Why? Because they have very generous minimum wage laws.

While you are there, you can look up the unemployment rate for Switzerland, which has no minimum wage law at all. Over the years, I have never seen the unemployment rate in Switzerland reach as high as 4 percent. Back in 2003, “The Economist” magazine reported: “Switzerland’s unemployment neared a five-year high of 3.9% in February.”

In the United States, back in what liberals think of as the bad old days before there was a federal minimum wage law, the annual unemployment rate during Calvin Coolidge’s last four years as president ranged from a high of 4.2 percent to a low of 1.8 percent.

Low-income minorities are often hardest hit by the unemployment that follows in the wake of minimum wage laws. The last year when the black unemployment rate was lower than the white unemployment rate was 1930, the last year before there was a federal minimum wage law.

The following year, the Davis-Bacon Act of 1931 was passed, requiring minimum wages in the construction industry. This was in response to complaints that construction companies with non-union black construction workers were able to underbid construction companies with unionized white workers (whose unions would not admit blacks).

Looking back over my own life, I realize now how lucky I was when I left home in 1948, at the age of 17, to become self-supporting. The unemployment rate for 16- and 17-year-old blacks at that time was under 10 percent. Inflation had made the minimum wage law, passed ten years earlier, irrelevant.

But it was only a matter of time before liberal compassion led to repeated increases in the minimum wage, to keep up with inflation. The annual unemployment rate for black teenagers has never been less than 20 percent in the past 50 years, and has ranged as high as over 50 percent.

You can check these numbers in a table of official government statistics on page 42 of Professor Walter Williams’ book “Race and Economics.”

Incidentally, the black-white gap in unemployment rates for 16-year-olds and 17-year-olds was virtually non-existent back in 1948. But the black teenage unemployment rate has been more than double that for white teenagers for every year since 1971.

This is just one of many policies that allow liberals to go around feeling good about themselves, while leaving havoc in their wake.

Thomas Sowell is a senior fellow at the Hoover Institution, Stanford University, Stanford, CA 94305. His website is www.tsowell.com.

Written by

Thomas Sowell, a syndicated columnist and economist, is a Senior Fellow at the Rose and Hoover Institute at Stanford University.

Latest comments

  • So, based on your logic, the solution to our economic woes is to re-instate slavery. We are already experiencing “new age” feudalism with nearly all the financial assets being owned by the top 10% of the population. It seems the next step is for the top 10% to own the human assets as well. How about imposing a mandatory cap on executive compensation instead. It could take the form of a ratio, where the highest paid executive’s TOTAL compensation can’t exceed 50X that of the average employee. It was approximately 40x in the 1980’s and is now 200X. It is pretty obvious where that trend is heading……..extreme social unrest and much bloodshed. The current global social conditions are, historically, a precursor to widespread WARFARE.

    • Quite a reasonable assessment.
      One can easily imagine a world where there is no minimum wage, no social safety net, and no government subsidies for those in poverty.
      What would result is almost zero unemployment, where hundreds of millions work at exhausting labor yet STILL remain in poverty. While this might be a great boon for the few, it is a paradigm that can’t long endure.
      Unregulated and unbridled capitalism seems so desirable until one considers the potential for economic chaos if even a significant percentage (much less a true majority) of its subjects decide that any alternative is preferable to the failed promises of the past.
      To be candid, I think we are teetering on two potential futures, either one with a more equitable distribution of wealth, or civil war.
      Having little personal confidence in our current economic status quo, yet having managed to avoid the devastation I have seen consume so many, I can assure you.
      Many of us will not be going quietly into that night.

      • There are plenty of living wage jobs available right now, just ask Obama. Socialism will not solve the problem.

    • Yes unemployment for all is much better?

  • Wow….Switzerland has no minimum wage, and Switzerland has low unemployment, therefore no minimum wage must produce low unemployment. Good grief, the man is at Stanford!
    Switzerland also has mandatory vacation time (4 to 5 weeks) for employees, and pretty good protection of employees against employer arbitrary abuse. Maybe that’s why they have low unemployment.
    Switzerland spent only .7% of its GDP on military in 2013, while the US spent 3.8%. Maybe that’s why Switzerland has low unemployment.
    Switzerland has a system of mandatory health insurance coverage. Maybe that’s why Switzerland has low unemployment.
    Switzerland has a lot of jobs in the banking sector, guarding (and concealing) the financial doings of people in other countries. Maybe that’s why they have low unemployment.
    Switzerland uses a system of temporary foreign workers to fill jobs when jobs outstrip available workers, and send them back home when employment shrinks. Maybe that’s why Switzerland has low unemployment.
    What a waste of space this article is.

    • And while we’re at it, don’t Mr. Sowell and his fellow conservatives think that unemployment benefits contribute to unemployment by destroying the “incentive” to work?

      Switzerland has a pretty generous unemployment program:

      Employees contribute 1.1% of wages to the unemployment fund, which is matched by the employer. And, according to http://www.expatfocus.com/expatriate-switzerland-social-security :

      “Unemployment benefits are paid according to how long the claimant has been contributing to social insurances. You will receive 34 weeks of benefit if you have made contributions for 6 months up to a year, 50 weeks for contributions between and year and 18 months, and 80 weeks for anything over that. A shorter duration applies to young people under 25 without children. The benefit will be 70% of your gross employed income to a maximum of CHF 8,100 per month. If you have children you will receive an additional 10%.”

  • I bet there was 0.0000% unemployment among blacks of any age in the southern states of America during the glorious period of slavery!

  • The problem with not having any minimum wage is that we’re a welfare state; if you don’t earn enough, others who do are taxed to support you. The end result is that we indirectly subsidize low-wage-paying businesses by supporting their workers. It’s been reported, for example, that Walmart’s low-wage workers cost U.S. taxpayers over $6 billion in public assistance including SNAP (food stamps), Medicaid and subsidized housing. Corporate welfare is so crucial to Walmart that it’s actually part of their business model; the execs try to “capture” SNAP dollars indirectly through their low-wage work force.

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