Minimum-Wage Laws

March 20, 1961

The sponsors of minimum-wage legislation assume that they can force the payment of higher wages to marginal workers simply by commanding such wages to be paid. They assume that these higher wages will not force any of the workers affected into unemployment. If this were so, if a higher minimum wage did nothing but good, there would be no reason for stopping anywhere.

The advocates of new minimum-wage legislation ask: If $1 or $1.15 an hour minimum wage is good, why not $1.25? But we may ask them in turn: If $1.25 an hour, why not $1.50? Or $2? Or $5? Or $10 an hour? Apparently even the most naïve proponents of a higher minimum wage dimly recognize that there is some point at which an increase in the minimum wage could do more harm than good. What is this point? And how do they themselves determine where it is?

If we are to judge by the record, their standard is that the legal minimum wage should be always a little bit higher than the existing minimum, whatever that happens to be. In 1938, when the average hourly wage paid in all manufacturing was about 62 cents an hour, Congress set a legal minimum of only 25 cents. In 1945, when the average factory wage had risen to $1.88 an hour, Congress [raised the] minimum to 40 cents. In 1949, when the average had risen to $1.40, Congress raised the minimum again to 75 cents. In 1955, when the average had risen to $1.88 an hour, Congress boosted the minimum to $1. Now that the average factory wage is about $2.30 an hour, the proposal is to raise the minimum to $1.15 in 1961 and to $1.25 in 1963.

ROAD TO INFLATION

Thus, as increased capital investment and new and better tools of production keep raising marginal labor productivity, and as the general level of wages is raised by competition of employers, the ideas of reformers as to what the minimum wage ought to be keep rising always a little ahead of actualities. Among the simple, this creates the optical illusion that it is the successive increases in the minimum-wage law that have pushed up the actual average of real wages. If that were really so, the most underdeveloped nation would have no problem. It could set wages wherever it wished, by passing a law.

No doubt minimum-wage laws have played a role in raising money wages. When unemployment has been brought about by higher minimum money wages (which tend to push up all other wages by persistence of existing differentials) increased political pressure has been built up for further monetary inflation to make the higher wages payable. Thus successive minimum-wage boosts have exercised continuous political pressure for more inflation.

FORCING UNEMPLOYMENT

Minimum-wage laws tend to hurt most precisely the workers they are ostensibly meant to help. They increase unemployment especially among low-paid workers. For the first thing that happens when a law is passed that no one shall be paid less than $1.25 an hour is that no one whose work is not deemed worth $1.25 an hour will be employed at all. You cannot make a man worth a given wage by making it illegal for anyone to offer him less. You merely deprive him of the right to earn the amount that his ability permits him to earn.

President George Meany of the AFL-CIO has said: “If an enterprise cannot survive except by paying wages of 75 cents or $1 an hour, I am perfectly willing for it to go out of business.” This could be reworded as follows: “If workers are only getting $1 an hour, I am perfectly willing to see them forced into total unemployment.” How does this make them better off? Meany forgets that low as are the wages in the enterprise he is willing to destroy, the workers in those enterprises have presumably found them to be the best among the alternatives open; otherwise they would have taken jobs elsewhere. Workers are not benefited by being forced into unemployment or onto relief. Nor are the taxpayers. Nor are the former customers of the enterprises forced to shut down. The nation is not benefited when its marginal production and industries are deliberately destroyed.