European Skepticism of Minimum Wage Falls on Deaf Ears in America

Spain’s central bank—operating within the European country with the highest rate of unemployment—just recommended to the government in Madrid a suspension of the minimum wage in certain industries. The bank wants to remove the law from being a “barrier” to hiring lesser skilled workers.

Say again? Our more left-leaning friends across the Atlantic just admitted that the minimum wage, a price floor for labor markets, creates unemployment. This simple economic logic is often denied by economists, pundits, and politicians in the U.S., and most recently by Barack Obama in pursuing his goal to increase the minimum wage to $9 per hour.

With more than half of all Spaniards under the age of 25 currently jobless, the welcome realization that minimum wage prices low-skilled and typically young workers out of lower-paid jobs they would gladly take comes at a high price.

Germans had this epiphany too at a time when they endured unemployment above that of their European peers. That’s why the Social Democratic government of the 2000s (yes, a bunch of center-left Europeans!) began implementing a “minijobs” program in 2003—as part of a larger package of labor liberalizations—for people who wanted to work a limited number of hours per week at a competitive and tax-free wage. Though Germany does not have an official minimum wage, most full-time wages are set through industry-level collective bargaining agreements, thereby creating the same price floor as a wage law. The minijob contract is exempt from these wage conditions.

According to the The Wall Street Journal, roughly two-thirds of minijob workers hold no other job—meaning that they would otherwise be unemployed. And one in every five working Germans has a minijob. As the Euro Area reported a record-high unemployment rate of 12.2 percent in April, German unemployment remained among the lowest in Europe, at 5.4 percent, and youth unemployment was similarly low, at 7.5 percent.

Labor flexibility creates jobs. Blanket regulation requiring higher wages creates unemployment. Spain and Germany found this out the hard way. With unemployment still stubbornly high at 7.5 percent, let’s hope America does not.