Whither the Wage Floor? Better That It Wither: Postscript

Building A Wage Floor: A Story of Origins

           

There are several (one, two & three, for example) reasons to refrain from raising the minimum wage. Examining how a wage floor first came about is to discover anew that (a) it’s rooted in paternalism, (b) it’s insensitive to local concerns, and (c) it doesn’t help the poor, all reinforcing that the minimum wage is bad policy.

In June 1912, almost 103 years ago, Massachusetts became the first state to pass minimum-wage legislation. The law (here) was based on initiatives undertaken in New Zealand, Australia, and Great Britain between 1894 and 1907. But the Massachusetts law, like its UK predecessors, featured three important differences from today’s measures. One, it didn’t set a universal floor but created wage boards to arbitrate disputes and, when appropriate, to set minimum pay for various trades. Two, the minimums weren’t compulsory; employer recalcitrance could be publicized to encourage compliance. And three, the law applied only to women and children; it excluded male workers.

            Women Only

Prior to passage, the Massachusetts Legislature created the Commission on Minimum Wage Boards to review the proposed law. In April 1912 the Commission issued a report (here), which found that “a great part of” women were receiving below-subsistence pay. The Commission determined that legislative action was necessary “to prevent the exploitation of helpless women,” who the study called “absolutely ignorant of their own wage scale and what constitutes a living wage.” Compared to men, the study found that women were “more easily coerced.”

According to the state, the Massachusetts woman of 1912 was ignorant about and unable to address her own interests. The first American minimum-wage law explicitly sought to protect women and children from themselves.

Over about the next decade, 15 states plus the District of Columbia and Puerto Rico established a minimum wage (see here). All of these laws applied only to women and children (see here). As was typical of most, the explicit objective of the DC law (here) was to protect “the women and minors . . . from conditions detrimental to their health and morals resulting from wages inadequate to maintain decent living standards.”

The forbears of today’s minimum wage were built by the state’s distrust of the individual, at least of the individual woman.    

            Localism

Congress passed the DC minimum wage in September 1918. It, like all but four of the first 17 wage laws, followed the Massachusetts model of setting industry-specific pay by wage boards rather than having more general price floors set by statute.

In April 1918 during the congressional hearing (here) on the DC bill several months before the law’s passage, Felix Frankfurter, future US Supreme Court Justice and co-founder of the American Civil Liberties Union, attested to the value of boards focusing on individual trades in different locales instead of imposing a universal minimum pay rate across industries covering numerous regions. Frankfurter testified that “the facts of industry are so different in different portions of the State, which create different conditions, that it seems to me wise . . . to have separate boards for each industry, in order to allow for the varying factors in the problem.”

This captures precisely the lamentable inferiority of a federal minimum wage compared to one worked out state by state. The drafters of these early pieces of legislation seemed to appreciate the significance of local variables and the problems of a universal mandate. The wisdom then demonstrated would apply equally to today’s debate, which lacks such sensibility.

            Women Contra Men

During the opening remarks of the April 1918 congressional hearing, Edward Keating, Member of the US House of Representatives from Colorado who wrote the DC minimum-wage bill, asked rhetorically: “Why attempt to control the wages of women and children through legislation and not attempt by the same method to regulate wages of men?” Representative Keating gave a twofold answer: “Men are better able to protect their interests through organization, and, in addition to organization, men have had another powerful weapon which they have not hesitated to use and which has been denied women—that is, the ballot.”

Keating’s justification is based on the following principle: a minimum wage is necessary if an employee can’t (a) vote and (b) form an effective labor union.  

Women’s suffrage was guaranteed upon the ratification of the 19th Amendment to the US Constitution in August 1920. Although it’s not self evident how the right to vote bears on bargaining power in private-sector employment negotiations, women’s disqualification from the legislative process is nonetheless a sympathetic justification for a minimum wage.

In 1923 the US Supreme Court in Adkins v Children’s Hospital struck down the DC minimum-wage law on the basis that it violated due process as guaranteed by the 5th Amendment. The Court considered and rejected permitting the law under an exception for women based on the sexes’ unequal bargaining power:

[T]he ancient inequality of the sexes, otherwise than physical, . . . has continued “with diminishing intensity.” In view of the great—not to say revolutionary—changes which have taken place since that utterance, in the contractual, political and civil status of women, culminating in the Nineteenth Amendment, it is not unreasonable to say that these differences have now come almost, if not quite, to the vanishing point.

In justifying its refusal to uphold a women’s-only minimum wage, the Court explicitly relied on women’s suffrage and implicitly relied on women’s increased negotiating leverage. The former is difficult to refute; the latter requires some examination.  

In 1930 9.9 million women were employed compared to 34.9 million men (see here); however, only 2% of female workers were members of a union compared to 9% of men (see here and here). These numbers provide some evidence that the Court may have overestimated the meaning of women’s bargaining clout, at least if union membership constituted the metric.

But a principal cause of that disparity was union policy itself. As reported (here), in the early 1930s, “traditional labor unions, like those associated with the AFL, almost entirely excluded women.” Another account (here) explains “that the AFL . . . practiced exclusionary policies” that kept women out of unions.    

  

Despite the Supreme Court’s Adkins decision, the minimum-wage movement continued. In 1933, Connecticut, Illinois, New Hampshire, New Jersey, New York, Ohio, and Utah passed minimum-wage legislation (see here). As before, these laws applied only to women and children (see here). By this point the labor-law architects abandoned suffrage and collective bargaining as rationalizations. Instead, two tactical reasons explained the persistence for women-only legislation (see here).

First, strategists, including Felix Frankfurter, thought that including men reduced the chances of success in the inevitable constitutional challenges. Frankfurter proved prescient, albeit the law finally upheld wasn’t new but, passed in 1913, was one of the originals.

In 1937 in West Coast Hotel Co v Parrish, the Supreme Court overturned Adkins upon finding constitutional the State of Washington’s minimum wage. The Court explained that “the State has a special interest” in protecting women. In adopting a rationale it articulated in a 1908 case, the Court concluded that a “woman's physical structure and the performance of maternal functions place her at a disadvantage in the struggle for subsistence, and that her physical wellbeing becomes an object of public interest and care in order to preserve the strength and vigor of the race.” The Court continued, explaining that a woman “was properly placed in a class by herself, and legislation designed for her protection may be sustained even when like legislation is not necessary for men and could not be sustained.”

From the perspective of the US Supreme Court, by 1937 minimum-wage laws for women were justified not by lofty principles protecting against sweated labor or to ensure a living wage but by a blunt appreciation of the inherent, biological differences between females and males. Nonetheless, the doorway opened and hasn’t closed since.

The second tactical reason for writing women’s-only legislation was because labor unions were against a minimum wage for men.   

Opposed By Organized Labor First . . . .           

Today, union support for the minimum wage is a matter of orthodoxy (see, for example, here, here, and here). That wasn’t always the case. Samuel Gompers, founder and first president of the American Federation of Labor, wrote in 1913, “We want a minimum wage established, . . . but we want it established by the solidarity of the working men themselves through the economic forces of their trade unions rather than by any legal enactment.” As one commentator observed (here), “Probably one reason for the slow progress of wage laws was the position of organized labor.”  Labor didn’t simply withhold support for the minimum wage; labor worked to prevent it entirely.

Gompers expressed the AFL’s position that men, but not women, could obtain appropriate wages through collective bargaining (here):

If it were proposed in this country to vest authority in any tribunal to fix by law wages for men, Labor would protest by every means in its power. Through organization the wages of men can and will be maintained at a higher minimum than they would be if fixed by legal enactment. . . . [O]rganization is the most potent means for gaining a shorter workday and a higher standard of wages applies to women workers as well as men. But . . . the organization of women workers constitutes a separate and more difficult problem. Women do not organize as readily or stably as men. They are, therefore, more easily exploited.   

The AFL’s differentiation between men and women was consistent with the sentiment of the time. Unions’ opposition to a wage floor for men is not immediately understandable, particularly considering unions’ unconditional support for the minimum wage today, justified as a mechanism for protecting higher union wages.   

  

One explanation for labors’ early hostility toward labor legislation, like a minimum wage, was that it posed an existential threat to unions. For example, the AFL feared “that state protections might replace the need for unions”; “the AFL did not want to support legislative solutions that would give workers reason not to join voluntary associations” (here). AFL’s position was, in part, based on its calculation that labor laws posed a threat to the usefulness of labor organizations.

First, union membership rose during the first half of the 1900s (see here). In 1900 almost 1 million private-sector workers, 6.5%, were part of a union. In 1930 the figure grew to 3.4 million workers, or 13.3% of the private-sector workforce. And by 1958, the height of the labor movement by percentage, 16.8 million workers, representing 39% of the private-sector workforce, were a member of a union.    

Second, the National Labor Relations Act (here), signed into law by President Roosevelt in 1935, solidified employees’ right to organize and to be free of employer interference. As an illustration of the NLRA’s effect, union participation by private-sector employees increased from 3.3 million in 1935 to 6.8 in 1940, a 106% increase in 5 years. This marked an important legislative win for organized labor. The increase in membership, spurred by the NLRA, must have assured union leadership that labor legislation and labor organization weren’t incompatible but could coexist harmoniously.       

And third, the Great Migration motivated northern unions to seek protection from job competition. Between 1910 and 1930 approximately 1.5 million southern blacks moved north; by 1970, another 5 million blacks migrated from the South (see here). Consistent with their hostility toward women members, unions were hostile to blacks by refusing to allow black members.

A publication by the Bureau of Labor Statistics (here) explains, “Northern labor unions generally did not accept Afro-Americans as members and often threatened to strike companies where nonunion workers performed union jobs.” Booker T Washington was an early critic of the AFL: “By 1897 he was criticizing the AFL openly, warning that the federation’s racial policies left him no choice but to side with employers against labor unions.” (There is Power in a Union, Dray, Philip).

      

            Washington elaborated (here) on the “unfriendly influence of labor organizations” that precluded “black men in the North, as a rule, from securing occupation in the line of skilled labor.” That was from 1899, before the steep increase of blacks who moved north for jobs. The Great Migration exacerbated union animosity toward blacks: “African American migrants created great resentment among the unions like the [AFL] and most African Americans were excluded from organized union activity” (here).   

. . . . An Organ Of Labor’s Opposition Next 

            But closing an increasingly large number of blacks from union ranks must have proved insufficiently effective for labor leaders. And so, for the first time, unions lobbied for congressional action. A BLS publication (here) explains that the only labor legislation supported by unions was the Davis Bacon Act: “The only Government action [AFL’s President] Green advocated was to legislate working standards for Federal contractors, which had been mandated in 1931 through the Davis Bacon Act.”

Signed into law in 1931 by President Hoover, Davis Bacon (here) set a price floor below which construction contractors of the federal government couldn’t be paid. The expressed purpose of the act was to prevent contractors from hiring cheap, migrant labor at the expense of quality and of local workers (here). To achieve this end, the law, which is still in effect, required that federal construction contractors be paid the “prevailing wage,” which was well understood to mean the pay commanded by local unions.

Davis Bacon was a mechanism to ensure the continued hiring of union workers at the expense, mainly, of migrating black workers. The Federal Highway Administration explains (here) that the intent of Davis Bacon was “to prevent low-paid African Americans from taking jobs from white union workers on Federal projects.” William Green, the AFL’s president in 1931, explained, “Colored labor is being brought in to demoralize wage rates.” The result was a measure to secure jobs for northern, high-skilled union workers, most of whom were white, at the expense of southern, low-skilled non-union laborers, most of whom were black (see here and here). Testimony during congressional hearings betrays a protectionist intent, including the repeated use of the terms “cheap labor” and “bootleg labor” to describe the evils against which Davis Bacon fought. The Act’s sponsor, Congressman Bacon, said, “Members of Congress have been flooded with protests from all over the country that certain Federal contractors on current jobs are bringing into local communities outside labor, cheap labor, bootleg labor.”   

But Davis Bacon needn’t be disparaged for its untoward intent. For purposes here, it’s more important to consider the law’s effect.

The Pew Research Center remarked in August 2013 (here) on the consistently double rate of unemployment among blacks compared to whites since the early 1950s. Pew finds that “there’s no consensus on [the gap’s] causes.” One theory, which is simple but politically unpalatable, is that government action, like a minimum-wage law, bears some responsibility.

            One 1999 analysis (here) demonstrates that the unemployment divide between blacks and whites first emerged in 1950. Prior thereto, blacks were employed at rates similar to whites. Following illustrates the black and white unemployment rates by decade from 1880 to 2010:  

These figures don’t account for the quality and pay of the jobs held by blacks and whites; rather, they demonstrate that the disproportionate joblessness among blacks was not an unavoidable attribute of historical circumstances. The study contends that “government interventions in the labor market . . . such as the minimum wage and unemployment insurance” are “potential culprits” for the disparity.

Economist Walter Williams reasons (here) that Davis Bacon discriminates against blacks by intent and effect. Furthermore, Williams explains that, generally, minimum wage laws hurt blacks because, in addition to other reasons, employers become free to base their hiring decisions on noneconomic factors, such as employers’ racial prejudices.

            These are precisely the principles around which an AFL resolution was based in 1903. Concerned about an increase in Chinese immigration, the Canadian government required the payment of an entry tax. The AFL understood (here) that a minimum wage would protect Canadians competing with Chinese for jobs:

That this Congress demands the imposition of a $500 per capitation tax upon all Chinese entering Canada, believing that this will remedy the evil [of white labor being driven out of the province by this class of cheap foreign labor] . . . while realizing that the true solution to the problem is the enforcement of a minimum wage per hour, which will force employers of labor to pay the same wage to all working men, irrespective of race or color.

On its face, paying the same wage to “all working men, irrespective of race or color,” is laudable; however, the intent and effect were anything but.

            Aside from its push for Davis Bacon, the AFL didn’t support a gender-neutral minimum wage until 1937 when federal lawmakers, the Roosevelt Administration, and union leaders were drafting the Fair Labor Standards Act, which included the federal minimum wage that has persisted through today (see here). The AFL was one of several union voices instrumental in shaping the FLSA. President Roosevelt after meeting with William Green, president of the AFL, reported Green’s insistence that wages not be fixed below “the going rate in the vicinity.” That’s similar to unions’ success in Davis Bacon of equating “prevailing wages” with what unions established through collective bargaining. That’s no small victory. What the unions wanted was to keep any federally legislated wage floor at union rates. The purpose of making illegal wages below those bargained for by organized labor is to restrict competition.

Effectively, unions learned to appreciate the minimum wage as a device to transform their brotherhood into a cartel.  NPR recently published story that unions want a higher minimum wage notwithstanding that most union members won’t benefit from the rate rise (see here): “The spread of a higher minimum wage is a huge victory for the labor unions backing these measures — but it is unlikely most of the people getting raises will ever be part of organized labor.”  The reason for that is simple: “This is because most unionized workers earn far more than the minimum wage.”  Whatever union motivations are, magnanimity can’t explain this posture; rather, although few, if any, union members earn the minimum wage or would be directly affected by raising the minimum, a higher wage floor makes union competitors more expensive and union labor, by comparison, more competitive.

To consider the origins of the minimum wage in America is to realize that (a) it’s rooted in paternalism, (b) it’s insensitive to local concerns, and (c) it doesn’t help the poor, all reinforcing that the minimum wage is bad policy.