Minimum Wage Causes Maximum Pain

Sixty years ago on June 25, 1938, President Franklin Roosevelt signed into law America’s first minimum wage: 25 cents an hour, rising to 40 cents an hour over the next seven years, which is equivalent to almost $5.00 in 1998 dollars. Today, many increases later, Senator Ted Kennedy of Massachusetts is pushing for yet another hike in the minimum wage. Now is a good time to reexamine the origins of this important law and its impact on the job market.

Once the original bill was passed, many economists and politicians predicted that more workers would be thrown out of work and that the Great Depression—already in its ninth year—would get worse. That’s exactly what happened and during the fall elections, Roosevelt lost an astonishing 80 House seats to the Republicans.

It turns out that Ted Kennedy’s Massachusetts is where the impetus for the minimum wage actually began. The working poor struggling to eke out a living were not the driving force behind the 1938 law. New England’s highly paid textile workers were.

During the 1920s and 30s, the American textile industry had begun to shift from New England to the South, where the cost of living was lower and where Southern workers produced a high quality product for lower wages. Politicians in Massachusetts, led by Senator Henry Cabot Lodge, Jr. and House leader Joseph Martin, battled in Congress for a law that would force Southern textile mills to raise wages and thereby lose their competitive edge.

Governor Charles Hurley of Massachusetts bluntly demanded that Southern wages be hiked so that "Massachusetts [would] have equal competition with other sections of the country, thus affording labor and industry of Massachusetts some degree of assurance that our present industries will not move out of the state."

Southerners were well aware of what Massachusetts was attempting and they scuttled all minimum wage laws before Congress during 1937 and well into 1938. In doing so, they handed President Roosevelt his first major legislative defeat.

"Northern industries are trying to stop the progress of the South," Congressman Sam McReynolds of Tennessee observed, "and they feel if they can pass this [minimum wage] bill it will really be a tariff against Southern goods."

Southern congressmen joined those economists who argued that Congress couldn’t make a man worth a certain amount by simply making it illegal to pay him any less. They said that people whose skills and experience were worth less than whatever Congress decreed as the minimum wage would be priced out of the labor market. The Great Depression, they said, would get worse by Congress telling workers, in effect, "If you can’t find a job that pays at least the minimum, then you’re not allowed to work."

The desperate plight of unskilled workers trying to hold on to their jobs disturbed Congressman Carl Mapes of Grand Rapids, Michigan. "The enactment of this legislation," Mapes concluded, "will further increase unemployment, not reduce it. It is bound to increase unemployment unless all human experience is reversed." Mapes cited the case of a local minimum wage law passed in early 1938 in Washington, D. C. Immediately after its passage, the Washington Post lamented, scores of maids and unskilled workers were laid off by local hotels.

Roosevelt’s political muscle eventually prevailed and the national law was passed, but Mapes’s prediction has proven to be prophetic. Over the years, steady hikes in the minimum wage have priced out of the market the most vulnerable workers, including blacks, teenagers, and women with limited skills. Also vulnerable have been workers with developing skills whose labor is not yet worth what the law says they must be paid.

The bias of minimum wage laws against disadvantaged minorities has been conspicuous ever since 1956, when the minimum wage shot up from 75 cents to $1.00 an hour. During the next two years, nonwhite teenage unemployment spiralled from 14 to 24 percent. The recent 1996 hike in the minimum wage to $5.15 an hour had a similar effect: unemployment among black male teenagers jumped from 37 to 41 percent almost immediately, at a time when the economy was doing well for almost everyone else. That’s why Milton Friedman, the Nobel Prize winning economist, once called the minimum wage "the most anti-black law on the books."

Data from President Clinton’s own labor department show that at least 20,000 jobs were eliminated by the 1996 hike. The Employment Policies Institute calculates that the real job loss was closer to 128,000.

Senator Kennedy would have us believe that hiking the minimum wage again would be good for Massachusetts, and that what’s good for Massachusetts is good for Michigan and the nation, too. That was wrong in 1938, and it’s still wrong sixty years later.