Plunder and Deceit: Big Government's Exploitation of Young People and the Future

by Mark R. Levin

  Obtaining an entry-level job for teenagers and young adults is a necessary aspect of becoming an adult. Gainful employment inculcates responsibility and a sense of self-worth. It also allows those individuals to supplement the household income—if necessary, helping to support the family. However, obtaining a job for many young people is extremely difficult.

  According to President Barack Obama, increasing the amount federal contractors pay their employees to a minimum of $10.10 an hour (up from the $7.25 minimum hourly wage) “would lift millions of Americans out of poverty immediately. It would help millions more work their way out of poverty—without requiring a single dollar in new taxes or spending.”15 Always quick to demonize the opposition, Obama characterized those who disagreed with his position as “out of step and [putting] politics ahead of working Americans.”16 He insisted that a minimum wage “means making sure workers have the chance to save for a dignified retirement.”17 But forcing employers to pay more for unskilled or less-skilled workers, many of whom are younger, on top of the other statist economic and social policies, discourages employee retention and hiring.

  Consider some basic economic truths. If the government mandates that workers who are earning $7.25 must, overnight, be paid $10.10 an hour (or even $15.00 per hour) those new dollars must originate from some source. For example, if a fast-food restaurant that employs twenty individuals is required to pay some or all of them close to 30 percent more per hour, it must account for those dollars somewhere. The restaurant can try to sell more food, it can increase the cost of food, it can cut the hours of its employees, it can hire fewer workers, or it can lay off those currently employed.

  In addition, increasing the minimum wage directly and adversely affects youth employment because younger people are most likely to seek low-skilled jobs.18 For many teenagers, their employment experience begins at the local fast-food restaurant, bowling alley, or department store. Therefore, any mandate from the government that employers pay an established wage reduces opportunities for America’s youth to obtain entry-level jobs.19 The supply and demand for professional jobs requiring medical, law, or engineering degrees are not adversely affected by an increase in the minimum wage. They require specialized skills, and those skills translate to higher wages. Low-skilled and unskilled lower-end jobs, often filled by younger people and first-time employees, are the most at risk when the government raises the minimum wage.

  In the United States, the concept of a “minimum wage” arose from policies advanced by the Progressive Movement in the early twentieth century.20 Initially conceived as a floor for wages paid to employees, the first iterations of minimum wage laws applied to women and children in the labor force.21 Established in the states, the first of these laws applied to specific industries such as garment workers. Utah was the first state to set a flat-rate floor for wages that applied to all industries.22 These laws, however, were quickly challenged by business owners and, in 1923, the U.S. Supreme Court declared them unconstitutional.

  In Adkins v. Children’s Hospital, the Court found the District of Columbia’s minimum wage law unconstitutional. It ruled that a minimum wage law improperly interfered with the due process clause’s protections pertaining to the freedom to enter into contracts. Specifically, the law unduly impeded the individual’s right to contract:

  [T]wo parties having lawful capacity—under penalties as to the employer—to freely contract with one another in respect of the price for which one shall render service to the other in a purely private employment where both are willing, perhaps anxious, to agree, even though the consequence may be to oblige one to surrender a desirable engagement and the other to dispense with the services of a desirable employee.23

  As a result of this decision, many of the early minimum wage laws atrophied. One study conducted in 1991 determined that by the end of the 1920s “seven of the original seventeen minimum wage laws were declared unconstitutional, five others were either repealed or not enforced.”24

  With the onset of the Great Depression and the advent of the New Deal, there was a renewed movement to establish a federal minimum wage applicable to all industries. Shortly after his re-election in 1936, President Franklin Roosevelt engaged in a public effort to improperly influence the Supreme Court. The Court’s earlier decisions declaring aspects of Roosevelt’s New Deal unconstitutional raised his ire. He threatened to pack the Court with individuals who shared his political and policy views. Though he never carried out his threats, as even members of his own party in Congress objected, Roosevelt’s intimidation had the desired effect. In 1937, the Court reversed its position on the minimum wage by upholding the state of Washington’s minimum wage law.25

  After this change of course, and at Roosevelt’s urging, Congress enacted the Fair Labor Standards Act (FLSA) establishing a minimum wage of twenty-five cents.26 The law applied to “employees who produced products shipping in interstate commerce.”27 This provision was a transparent attempt to assuage the constitutional concerns regarding the infringement on private business arrangements between two parties—the suggestion being that Congress has the power to regulate commerce between and among states. Minimum wage laws are now seen everywhere, and politicians at the federal, state, and local levels of government are constantly pressing to increase these minimums.

  Instead of alleviating poverty and generating employment, the FLSA’s minimum wage provisions actually extended the Great Depression. Economists Harold L. Cole and Lee E. Ohanian found that “high wages reduced employment directly in the cartelized sectors of the economy, and also reduced employment in the non-cartelized sectors through general equilibrium effects.”28 They concluded “that the recovery from the Depression would have been much stronger if these policies had not been adopted.”29 As such, mandating a minimum wage eliminated a commonsense approach available to employers when experiencing an economic downturn: broadly reducing all wages to avoid firing employees. In lieu of reducing wages, employers were forced to lay off workers or avoid hiring new workers or both. As Cole and Ohanian point out, this affected not only the specific industries subject to regulation under the FLSA, but the entire economy, thereby helping to prolong the Great Depression.

  Nonetheless, the federal government alone has raised the federal minimum wage twenty-two times since its inception. The minimum wage is currently $7.25 per hour, and there are widespread efforts to increase this amount to $10.10.30 In 2013, the BLS reports, there were 79.5 million workers age sixteen and older who were paid by the hour—this accounts for 58.8 percent of all workers. Some 1.5 million workers earned the federal minimum wage ($7.25 per hour).31 Although those earning the federal minimum wage represent a small percentage of the total workforce, the younger the worker the more likely his employment status is to be harmed by the minimum wage.

  It is important to emphasize that most workers who are paid the minimum wage are young. Workers under age twenty-five compose approximately 20 percent of the total workforce, but they make up approximately half of those who earn the federal minimum wage.32 About 20 percent of employed teenagers earn the minimum wage, compared with 3 percent of workers over the age of twenty-five.33 Moreover, approximately 10 percent of part-time workers and approximately 2 percent of full-time workers earn the minimum wage.34

  Even so, Obama, among others, creates the impression that those who earn the minimum wage are largely heads of households and sole providers for their families. The minimum wage is said to be a lifeline keeping millions off the breadlines. In a signing ceremony touting his executive order directing federal contractors to raise the minimum wage, Obama surrounded himself with older workers who earn the minimum wage when he made his announcement. He stated, “I’ve invited some of the folks who would see a raise if we raised the minimum wage. . . . And like most workers in their situation, they’re not teenagers. . . . They’re adults—average age is 35 years old.” He continued, “Many of them have children that they’re supporting. These are Americans who work full-time, often
to support a family, and if the minimum wage had kept pace with our economic productivity, they’d already be getting paid well over $10 an hour.”35

  According to Obama, a failure of Congress to raise the minimum wage amounts to a consignment to poverty. “[T]he failure of Congress to act was the equivalent of a $200 pay cut. . . . That’s a month worth of groceries, maybe two months’ worth of electricity. It makes a big difference for a lot of families.”36 Of course, he utters not a word about the untold number of younger people who would lose their jobs or be priced out of the entry-level job market.

  The effects of the imposition of a minimum wage on the economy have been evaluated by economists using different types of models. (The term “model” refers to a method for applying and analyzing given data.) First among these models is the basic competitive (or neoclassical) model, which demonstrates that when the government establishes a minimum wage above the market-driven wage, it increases a business’s cost of production and induces two economy-wide effects.37 In their book Minimum Wages, University of California economics professor Dr. David Neumark and Federal Reserve policy expert William L. Wascher explain that “First, the price of the output rises and the demand for it falls, leading to a decline in production (the ‘scale effect’).” Next, “the higher wage rate causes [businesses] to substitute capital for labor in the production process (the ‘substitution effect’). As a result, the demand for labor falls.”38 This negative demand for labor “applies unambiguously only to less-skilled workers whose wages are directly raised by the minimum wage.”39 In other words, under the basic competitive model, the cost of the output (whether it is hamburgers or candy at the drugstore) increases. And unskilled and low-skilled jobs are lost when the minimum wage is increased.

  As should be clear by now, businesses make adjustments when the minimum wage is increased. Cato Institute scholar Mark Wilson explains that “all economists agree that businesses will make changes to adapt to the higher labor costs after a minimum wage increase.” “The higher costs will be passed on to someone in the long run; the only question is who.”40

  Consider the case of SeaTac, a suburb of Seattle that increased its minimum wage for certain service industry employees to fifteen dollars per hour starting January 1, 2014. The Seattle Times reported in February 2014: “At the Clarion Hotel off International Boulevard, a sit-down restaurant has been shuttered, though it might be replaced by a less-labor-intensive café. . . . Other businesses have adjusted in ways that run the gamut from putting more work in the hands of managers, to instituting a small ‘living-wage surcharge’ for a daily parking space near the airport.” Some businesses in SeaTac have cut benefits to their employees. When asked whether they appreciated the increase in the minimum wage, a hotel employee replied, “I lost my 401k, health insurance, paid holiday and vacation.” The hotel reportedly offered meals to its employees. Now the employees must bring their own food. The hotel has also cut overtime and the opportunity to earn overtime pay. A part-time waitress stated, “I’ve got $15 an hour, but all my tips are now much less.”41

  Economists Neumark and Wascher evaluated decades of studies analyzing the efficacy of the minimum wage and the various models used to analyze their economic effects. They concluded that “Based on the evidence from our nearly two decades of research on minimum wages, coupled with the evidence accumulated from an impressive body of research conducted by others, we find it very difficult to see a good economic rationale for continuing to seek a higher minimum wage.”42 Numerous economic studies conducted over decades are “fairly unambiguous—minimum wages reduce employment of low skilled workers.” These “adverse effects [are] even more apparent when [the] research focuses on those directly affected by minimum wages.”43

  Furthermore, wages for low-skilled jobs are dictated by supply and demand, not “the unconstrained wage offers of employers.”44 “[W]e are hard-pressed to imagine a compelling argument for a higher minimum wage when it neither helps low-income families nor reduces poverty.”45 Neumark and Wascher cite a study that found the average wage for day laborers in California—a job completely unregulated and requiring minimal skills—is more than eleven dollars per hour.46 In this case, the market and the laws of supply and demand increased hourly wages well above the current federal minimum wage.

  A recent study by the Congressional Budget Office (CBO) underscores the findings of Neumark and Wascher. After examining the effects of raising the minimum wage, the CBO concludes that for those who keep their jobs, wages would obviously increase, however, “jobs for low-wage workers would probably be eliminated, the income of most workers who became jobless would fall substantially, and the share of low-wage workers who were employed would probably fall slightly.”47 Indeed, increasing the minimum wage would “reduce total employment by 500,000 workers.” Moreover, most of the increased earnings of those who retain their jobs would not go to families below the poverty level because “many low-wage workers are not members of low-income families.” The CBO estimates that of the $31 billion in increased earnings, 19 percent would go to households below the poverty line while 29 percent would go to families “earning more than three times the poverty threshold.”48

  It should now be obvious that the rising generation, particularly teenagers and young adults, is most adversely harmed by increases in the minimum wage, the consequences of which include pervasive unemployment and the lack of important job experience, affecting their future employment prospects and potential for success.

  NINE

  * * *

  ON NATIONAL SECURITY

  THE RISING GENERATION WILL suffer the most egregious afflictions and casualties should the governing generation and public officials fail to competently and adequately carry out their national security, military, and foreign policy duties. However, too many younger people are inattentive to or nonplussed about—or in rancorous opposition to—the development and maintenance of such policies. The rising generation has a responsibility to itself and future generations to properly comprehend the nature of the multiple national security threats America confronts.

  The United States faces very serious national security threats from numerous sources including Islamic terrorism, which is spreading rapidly throughout the world and seeks to establish “sleeper cells” within America’s borders; Communist China’s extensive military build-up and expansionist designs; and fascist Russia’s intimidation and invasion of sovereign neighbors. Moreover, North Korea, led by an erratic and menacing dictator, continually threatens nuclear and conventional war against American allies in the region; and Iran is a terrorist regime hell-bent on acquiring nuclear weapons. In addition, there are unstable nations that hold poorly secured nuclear weapons and even stockpiles that are sought by other regimes. No group of citizens should be more focused and diligent about America’s national security and military readiness and deterrence capabilities than the members of the rising generation, inasmuch as younger people fight the country’s wars.

  National security threats have evolved speedily and dramatically during the last few decades. Traditional threats are posed to interests on land, sea, and in air. Modern threats have expanded to space and cyberspace. These “global commons” must also be protected in order to preserve America’s security and economic interests.

  In the late 1980s, the Soviet Union posed the greatest threat to the United States.1 The Soviets amassed a powerful military, including nuclear weapon stocks. It had extensive international influence and an aggressive expansionist strategy.2 However, as a result of the military, foreign, and economic policies instituted by President Ronald Reagan, in December 1991 the Soviet Union collapsed and a new era ushered in a different set of national security challenges.3 Later, with the emergence of ex-KGB official and strongman Vladimir Putin as, effectively, Russia’s dictator, Russia has followed a course of regional thuggery and military aggression, posing a renewed threat to the United States and its allies.

  For example, in 2009, Russia effectivel
y annexed the Georgian provinces of South Ossetia and Abkhazia.4 In 2014, Russia annexed Crimea, sponsored armed rebellion and a separatist movement in eastern Ukraine, and escalated tensions with North Atlantic Treaty Organization (NATO) member nations in the region.5 NATO now considers Russia its greatest threat.6 According to a European Leadership Network report, “[t]hese events form a highly disturbing picture of violations of national airspace, emergency scrambles, narrowly avoided mid-air collisions, close encounters at sea, and other dangerous actions happening on a regular basis over a very wide geographical area.”7 In addition to these incidents, Russia has initiated military brushes near both the Canadian and American borders.8

  China has embarked on a vigorous military and economic program designed to spread its influence regionally and worldwide.9 From its bordering neighbors and the African continent to South and Central America, China is investing tens of billions of dollars in nation-building efforts obviously designed to increase its—and decrease American—influence.10 China is also the principal supporter of oppressive regimes in North Korea,11 Syria,12 and Venezuela.13 And China is among the countries that have provided Iran with vital assistance in the development of its nuclear program.14

  Furthermore, China seeks superiority in the East and South China Seas, where 90 percent of all global trade transits. China is building islands in the South China Sea, from where it is claiming territorial rights in international waters.15 Defense and national security expert Tara Murphy notes that China is asserting exclusionary rights to waterways well beyond established international standards, which threatens to block trade access and could encourage other countries to institute similar polices.16 Since 1996, China has prioritized the development of a naval fleet that will rival the United States Navy.17 According to a United States Navy intelligence analysis, China’s submarine capabilities have been greatly improved to the point where China is now able to launch long-range ballistic missiles that can reach America.18 Alarmingly, senior navy intelligence officer Jesse Korotkin has determined that China is well ahead of schedule in its goal of modernizing its navy by 2020.19 It has transitioned from a coastal defense navy to one capable of conducting multiple operations in nearly any part of the world.20 China’s current capabilities have the potential to cripple United States military operations from Guam to Okinawa, which would have a debilitating effect on America’s defenses in the event of armed conflict.21