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Minimum-Wage Law as Political Racketeering

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President Clinton and many congressmen are hankering to raise the federal minimum wage from $4.25 to $5.15 an hour. The minimum wage epitomizes government pseudo-paternalism, and Clinton’s proposal should receive harsh condemnations from anyone who has looked at the history of minimum-wage policies. The minimum wage symbolizes the dishonest paternalism of today’s welfare state.

The state of Oregon, in a brief to the U.S. Supreme Court defending its 1917 minimum-wage law, asserted: “If Simpson [a woman thrown out of work by the Oregon law] cannot be trained to yield output that does pay the cost of her labor, then she can . . . accept the status of a defective to be segregated for special treatment as a dependent of the state.” This statement vivifies how government cannot stack the deck to benefit some without throwing other people out of the game. (The court struck down the Oregon law as unconstitutional.)

Minimum-wage laws presume that politicians are morally justified in destroying some people’s freedom in order to inflate other people’s wages. Though politicians are rarely so honest about their intent these days, this is still frequently the essence of government labor law — dictating that some people have no right to be self-reliant and must become wards of the state.

President Franklin D. Roosevelt declared in 1937:

“All but the hopeless reactionary will agree that to conserve our primary resources of manpower, government must have some control over maximum hours, minimum wages, the evil of child labor, and the exploitation of unorganized labor.”

The 1938 Fair Labor Standards Act (FLSA) sought to “conserve our primary resources of manpower” by driving hundreds of thousands of people out of the workforce in order to rig higher wages for other workers. Though the national unemployment rate was 18 percent, the federal government tried to forcibly drive up wages by political command — as if employers were more likely to hire people at higher wages than at lower wages. The FLSA mandated a 25-cent-an-hour minimum wage and time-and-a-half pay for any work done over forty hours a week.

The government supposedly began regulating wages in order to protect workers from exploitation — yet the first wage order was explicitly intended to exploit the least skilled workers by evicting them from the labor market. The original minimum-wage law was enacted in part to decrease the advantage that low-wage southern factories had over northern factories; Rep. John Dent of Pennsylvania later explained: “We had to do something; we were losing all of our jobs to the south.” The new wage law devastated Puerto Rico; as economist Benjamin Anderson noted, “Immense unemployment resulted there through the sheer inability of important industries to pay the 25 cents an hour.”

The more effective minimum-wage laws are in raising wages above market clearing levels, the more people will be evicted from the labor market. Congress raised the minimum wage in nominal terms by 46 percent between 1977 and 1981; a federal commission estimated that the minimum wage hikes resulted in the loss of 644,000 jobs, including jobs that were not created. The National Bureau of Economic Research estimated that minimum-wage hikes in 1980 and 1981 threw between three and four percent of minimum-wage workers out of jobs. A 1983 General Accounting Office report “found virtually total agreement that employment is lower than it would have been if no minimum wage existed. . . . Teenage workers have greater job losses, relative to their share of the population or the employed work force, than adults.”

The minimum wage has been described as “a tax from the poor to the poor” whereby some low-wage earners increase their income while others lose all their income. The current minimum wage effectively prohibits people from working unless their labor is worth at least $4.25 an hour. Government schools routinely fail to prepare people for work — and then government regulations ban them from the job market because their labor is not as valuable as politicians claim it should be. To decree a minimum wage without guaranteeing everyone a job is simply to knock those on the bottom rung off the ladder. President Carter’s Minimum Wage Study Commission noted that “an explicit purpose of the minimum wage was, and is, to protect adult workers from low wage competition from youth.” One person’s freedom to work is destroyed so that someone else can get an extra quarter or half dollar an hour.

Minimum-wage regulations are contained in one of the most deceptively named statutes on the books: the “Fair Labor Standards Act.” “Fair labor” restrictions are almost inevitably fairer to politicians than to workers. The Fair Labor Standards Act is basically a blank check to allow political manipulation of the labor markets to reward some people by throwing other people out of the labor market. The Fair Labor Standards Act contains no definition of “fair labor”; instead, the act permits politicians to endlessly manipulate and rig labor markets for their own advantage. “Fair labor standards” are often a moral deification of political opportunism — assuming that something is automatically fair simply because politicians or bureaucrats say it is fair. “Fair labor” policies divide the labor force into political victors and political victims. It would be more accurate to rename the FLSA the Political Standards for Labor Act.

The Fair Labor Standards Act originally applied mainly to factories and manufacturing work, but since then the law has been extended. The Labor Department’s Office of Wages and Hours determines whether employers are in compliance with the FLSA. Some organizations have been dragged through bureaucratic hell trying to understand and comply with federal wage and hour proclamations.

Members of the National Association of Private Residential Resources — primarily group homes serving the mentally retarded — have struggled since 1987 to comply with conflicting federal rulings on whether group homes must pay residential employees for the time they spend sleeping. The Department of Labor tentatively ruled in 1988 that group homes would not have to pay workers for the time they spent sleeping as long as the employees were sleeping in “private quarters in a home-like environment.”

Naturally, this spawned numerous disputes over the definition of a home-like environment. The DOL warned group homes:

“The amenities and quarters must be suitable for long-term residence by individuals and must be similar to those found in a typical private residence or apartment, rather than those found in . . . short-term facilities for travelers.”

According to Hyman Richman, a former DOL wage and hour investigator who now serves as a consultant, “One inspector in Maryland insisted that ‘living facilities’ meant a separate bedroom, kitchen, living room, and bathroom — and that was the minimum.” The DOL also decreed that employees must get at least five hours of sleep each night. “If a group home worker is up for more than three hours during the night dealing with an emergency, the employer cannot simply allow the worker to sleep in the next morning; instead, the employee must be paid both for the hours spent sleeping and working.” A Nebraska regional mental retardation services board was ordered to pay $300,000 in retroactive pay for sleep time to workers in 1990. (The amount of retroactive pay was sharply reduced by an appeals court.) Lawsuits against group homes for violations of the vague and continually changing DOL rulings on sleep time have disrupted nonprofit organizations struggling to provide better care to the mentally retarded. There is no reason why federal labor department officials should be dictating when a worker in Idaho gets his sleep.

Under current federal law, government officials can prohibit a citizen from making his “best bargain.” They have the power to prohibit someone from helping himself.

For politicians and bureaucrats — the question of whether to restrict freedom of contract is often simply a question of whether they should extend their own power and control. For many congressmen, the question of whether government should restrict freedom of contract is simply whether they can personally benefit from further shackling and trammeling the citizenry. And since unions deluge congressmen with contributions for sabotaging labor markets, raising the minimum wage is very profitable for incumbents on Capitol Hill. And, regrettably, since public opinion polls show that over 80% of Americans favor raising the minimum wage, congressmen can profit at the polls. Apparently, bogus paternalism is better than no paternalism at all.

Politicians almost always profit from their restrictions on other people’s freedom. The degrees of restriction of freedom of contract thus are one of the clearest measures of political imperialism. For almost every reduction and destruction of freedom of employment and freedom of contract, Congress or the bureaucracy had an ulterior motive. In public, they proclaimed that the new restrictions would help some groups that could not help themselves; in private, they bragged to their campaign contributors that they had once again earned their keep.

The Fair Labor Standards Act should be repealed. Americans should need no more evidence to prove that politicians abuse their power over labor markets.

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    James Bovard serves as policy advisor to The Future of Freedom Foundation. He has written for the New York Times, The Wall Street Journal, The Washington Post, New Republic, Reader's Digest, Playboy, American Spectator, Investors Business Daily, and many other publications. He is the author of a new e-book memoir, Public Policy Hooligan. His other books include: Attention Deficit Democracy (2006); The Bush Betrayal (2004); Terrorism and Tyranny (2003); Feeling Your Pain (2000); Freedom in Chains (1999); Shakedown (1995); Lost Rights (1994); The Fair Trade Fraud (1991); and The Farm Fiasco (1989). He was the 1995 co-recipient of the Thomas Szasz Award for Civil Liberties work, awarded by the Center for Independent Thought, and the recipient of the 1996 Freedom Fund Award from the Firearms Civil Rights Defense Fund of the National Rifle Association. His book Lost Rights received the Mencken Award as Book of the Year from the Free Press Association. His Terrorism and Tyranny won Laissez Faire Book's Lysander Spooner award for the Best Book on Liberty in 2003. Read his blog. Send him email.