The Banishment of the Marginal Worker

Do you know about Europe’s problem with the NEETs? This is the name being given to those mostly young workers who are not in school, not employed and not in training. The designation applies to one in five people aged 24 and younger.

Unemployment among this generation is frighteningly high all over the eurozone. These people are wandering and lost. They are slumming and rioting from Athens to London, and not one politician in power has a viable plan for what to do about it.

The United States is a step behind this curve but going the same way, with unemployment among this generation in the 18-19% range, according to official statistics (12 years ago, it was 6%). The trend line is still up. Looking at the broad measure of all people who gave up applying or who are working in low-wage part-time jobs and begging for more hours, we are now in the third year of a gigantic demographic shift in which young people are being shut out by the millions.

Step back from this a moment and you realize just how crazily inexcusable this situation is. The digital age is requiring all kinds of new skills from workers, and no group is more adaptable in this respect than young people. This entire generation is comfortable with digital media in a way that their parents are not. This should be a time when the marketability of young minds should be at its height.

What’s gone wrong? It’s not that there is no work to do. There is always plenty of work to do at some price. And earning some wage is better than earning nothing at all. And least you get your foot in the door. The list of barriers to entry is a long one. It includes mandated benefits that business can’t afford: the restrictions on moving people in and out of firms, fears of legal liability, mismatches between state-funded education and real-world workplace demands.

But let’s just deal with the no-brainer: the minimum wage. This policy is a human rights violation. It forbids workers from negotiating directly with an employer and coming to mutually agreed-upon terms of employment.

The minimum wage says to workers the police power of the state prohibits you from offering your services for less than $7.25 per hour. If you strike such a deal, heads will roll. You might want to work for less, and your employer might be hip to this too, but the law absolutely forbids it. If you are caught making such a deal, you will be thrown out on the street where you belong.

How does this help anyone? It helps existing workers, perhaps, by lessening competition for their jobs. But it also guarantees a certain level of unemployment. How much? Art Carden at Forbes cites research showing that among the youth population of minorities, the minimum wage increases of the last three years have caused more job loss and unemployment than the recession itself.

This sounds about right, but these kinds of issues are notoriously difficult to quantify. All we do know is that the high minimum wage shuts workers out of the market. We don’t know by how much precisely, and we don’t know how many people would be suddenly employable if it were repealed. All we know is that repeal would help fix a disastrous situation.

Frankly, I find it ridiculously hypocritical for any politician to whine about youth unemployment while not pushing to repeal laws that make employment illegal. If you make work illegal under a certain wage ceiling, guess what? You are going to see more unemployment than you otherwise would. This is not rocket science.

And how high is the minimum wage? It is nearly twice as high today as when it was first implemented in 1938. The first minimum wage was $0.25, which translates to about $4 today. Would that we had the New Deal back today! Millions would suddenly be back at work. Some politician should propose the FDR Memorial Labor Act that reduces the minimum wage to $4. That would be fun to watch.

But let me tell you about some amazing research that will change the way you look at these laws. The researcher here is Thomas C. Leonard. His remarkable paper “Retrospectives: Eugenics and Economics in the Progressive Era” was published in The Journal of Economic Perspectives in 1995 (here).

Leonard proves that the minimum wage is not a case of good intentions gone wrong. It is not as if people didn’t understand the fallout. Quite the reverse. It was originally conceived of as a means to toss people out of the workforce. To prove this, he returns to the economic writings of the Progressive Era to reveal some remarkable prehistory here.

Leonard summarizes: “Progressive economists, like their neoclassical critics, believed that binding minimum wages would cause job losses. However, the progressive economists also believed that the job loss induced by minimum wages was a social benefit, as it performed the eugenic service ridding the labor force of the ‘unemployable.’”

He offers massive proof in the words of the economists themselves, all written for respectable journals and books at the time.

“‘[O]f all ways of dealing with these unfortunate parasites,’ Sidney Webb (1912, Page 992) opined in the Journal of Political Economy, ‘the most ruinous to the community is to allow them to unrestrainedly compete as wage earners.’”

Henry Rogers Seager: “If we are to maintain a race that is to be made of up of capable, efficient and independent individuals and family groups, we must courageously cut off lines of heredity that have been proved to be undesirable by isolation or sterilization.” The minimum wage was central to the isolation strategy.

Royal Meeker, Wilson’s labor czar, wrote: “It is much better to enact a minimum wage law, even if it deprives these unfortunates of work…Better that the state should support the inefficient wholly and prevent the multiplication of the breed than subsidize incompetence and unthrift, enabling them to bring forth more of their kind.”

Florence Kelley, whom Leonard says was “perhaps the most influential U.S. labor reformer of the day,” “endorsed the Australian minimum wage law as ‘redeeming the sweated trades’ by preventing the ‘unbridled competition’ of the unemployable, the ‘women, children and Chinese [who] were reducing all the employees to starvation.’”

Frank Taussig was even more brazen. In the context of wage floors, he said that they were a good way to deal with the criminal class and the tramps who “should simply be stamped out.” “We have not reached the stage where we can proceed to chloroform them once and for all; but at least they can be segregated, shut up in refuges and asylums and prevented from
propagating their kind.”

This was about 100 years ago, when people were writing this kind of disgusting material as a defense of how the minimum wage would work. Well, in this sense, the minimum wage has worked. It has helped to shut out a generation from participating in the division of labor. Now they wander the streets in Europe and America, despairing for the future. They will grow older like the rest of us and some day be adults — without training, without work experience, without the learning and socialization that comes with productive employment.

Good intentions gone awry? Think again. There are certain people with influence over the shape of the law whose stated regrets about the current situation are just a bit implausible. Do they care about the rise of the NEETs? Do they care enough to repeal their stupid laws that created them?

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