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.
Early in the century, after a woman was thrown out of work by a minimum-wage law in Oregon, the state argued to the U.S. Supreme Court that if she “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.” That 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.)
Minimum-wage laws presume that politicians are morally justified in destroying some people’s freedom 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.
The minimum wage is part of the 1938 Fair Labor Standards Act (FLSA), which sought, in Franklin Roosevelt’s words, to “conserve our primary resources of manpower” by driving hundreds of thousands of people out of the work force 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 ones.
The government supposedly began regulating wages 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.
The more effective minimum-wage laws are in raising wages above market clearing levels, the greater will be the number of people 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 3 and 4 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.”
“Fair labor” restrictions are almost inevitably fairer to politicians than to workers. The FLSA is 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 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. For example, 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.
Politicians almost always profit from their restrictions on other people’s freedom. 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.
