Legislating Unemployment

August 22, 1949

The best prices are the prices that enable the largest possible volume of goods to be produced and sold. The best wage rates are the highest wage rates under which full employment is possible. In some lines wage rates have already been forced above this level. That is largely why we now have an estimated unemployment of about 4,000,000.

But exactly at this time the Administration seems bent on forcing still more unemployment by forcing wage rates still higher. Its theory is that higher wage rates under no matter what circumstances increase the income of labor and increase prosperity by increasing labor’s “purchasing power.’” This belief is political in origin. No one holds it about other prices. There it is clearly recognized that excessive prices cause goods to remain unsold.

But in the same way excessive wage rates, which mean prohibitive production costs, force employers to drop workers or to shut down altogether. Those workers fortunate enough to be kept on may, it is true, individually get more income and purchasing power than before. But greater unemployment means that the body of workers as a whole has less income and purchasing power.

Present unemployment is a caution sign, a danger signal. But the Administration treats it as a signal to drive full speed ahead toward still higher wage rates. It is encouraging a fourth round. And Congress is in the process of boosting the Federal minimum wage from the present 40 cents an hour to 75. This would mean an overnight increase of 87½ percent. Indirectly this measure will boost wages all along the line; for workers above the minimum will insist on the maintenance of their existing differentials.

On top of this Secretary of Labor Tobin, ostensibly acting under the Walsh-Healey Act, is forcing wages in special regions and industries to levels undreamed of even by the supporters of the new minimum-wage bill. He recently fixed a minimum of $1.23 an hour, for example, in Northern steel mills working on government contracts.

Now it makes no sense from any standpoint to have two Federal minimum-wage laws, under one of which a minimum wage can be fixed 207½ percent higher than under the other. (This $1.23 rate would still be 64 percent higher even if a 75-cent general minimum were enacted.) Under what social or equalitarian theory does the government bestow such glaring favoritism on the workers of firms who happen to get government contracts and discriminate so grossly against the workers of firms that do not?

If it didn’t seem too much to hope for under the prevailing ideology, one might suggest that Congress could considerably mitigate the harm it is about to do with a 75-cent minimum wage law by inserting at least two major amendments. The first would completely repeal the needless and mischievous Walsh-Healey Act. The second would remove the joker in the present law under which employers are penalized 50 percent for overtime above 40 hours a week, no matter what regular wage rate they pay. Under this joker precisely those employers are penalized most who already pay most, and precisely those workers are rewarded most who already get most. It is this joker that has brought all workers, and not merely marginal workers, under Federal control. It has led to all the mischievous portal-to-portal and overtime-on-over-time rulings and decisions.

All this costly nonsense could be ended if Congress simply fixed the legal minimum overtime rate 50 percent higher than the legal minimum straight-time wage—instead of, as now, 50 percent higher than whatever straight-time rate a particular employer happens to pay. For example, if the new legal minimum straight-time rate is raised to 75 cents an hour, then the legal minimum overtime rate would be fixed at a flat $1.12½ an hour. Any wages above these minimums would be determined by free bargaining.