Planned Unemployment

February 7, 1949

Administration forces are all set to drive through an amendment to the Fair Labor Standards Act boosting the national minimum wage from 40 cents an hour to 75. They have even provided for a further administrative boost of the legal minimum to $1 an hour in selected industries.

They are now convinced that they can cure any economic deficiency whatever simply by forbidding it. Wages stand today in this country at the highest levels they have ever reached anywhere on the globe or in the entire history of mankind. But we are about to pass a law to compel them to be higher. Few have the courage to question this proposal. Who wants to be accused of favoring poverty and low wages?

Yet the question to be asked of this proposal is not how good are the intentions of its sponsors, but what will be its effect? Its first effect will be a boost in costs of production all along the line. It will mean an overnight increase in the minimum wage of no less than 87½ percent, and in industries where the $1 minimum is ordered, of no less than 150 percent. Nor will this increase be confined to the part of the labor force now getting less than the new minimums. For other workers will demand the maintenance of their existing differentials. The result must be upward pressure on all wage rates.

One of two results must follow. Marginal firms will find that they cannot afford the higher costs. They will be forced to drop their marginal workers or go out of business entirely. In that case the main result will be shrinking production and growing unemployment. Or the government will resort to still further monetary inflation, in order to enable industry to pay the higher wage rates. In that case the higher money wages will be offset by price increases and will therefore be illusory.

The new minimum-wage proposal ignores the existence and function of geographic wage differentials. It will act as a protective tariff for Northern industry against Southern. It will encourage the concentration of industry by driving it from the South to the North and from the small towns to the big cities.

Yet the Administration is set to force these changes through Congress without adequate study or debate. It seems too much even to hope that in doing so it will repeal the Walsh-Healey Act (which is simply a duplicate minimum-wage law with different standards) or that it will repeal the biggest joker in the existing wage-hour law. This joker is the provision that the employer must pay a 50 percent penalty rate for all hours above 40 a week, no matter what his regular rate of pay.

Under this provision a law ostensibly passed to apply only to marginal workers and their employers controls in practice the wages of nearly all the workers of the country. Out of this provision have sprung all the disruptive portal-to-portal and overtime-on-overtime rulings. The provision penalizes most the employers who are already paying most. It rewards most the workers who are already best off. Under it the employer who pays his workers 40 cents an hour need pay only 20 cents additional for overtime. But the employer who pays his workers $1.90 an hour must pay 95 cents an hour additional for overtime.

The cure for this absurdity would be simple. Those who insist on boosting the regular minimum-wage rate to 75 cents an hour could at least agree to fix the overtime minimum wage rate above 40 hours at $1.12½ an hour. Then both workers and employers would be free to negotiate higher regular or higher overtime wages by individual or collective bargaining.

But it is visionary to expect that the Federal bureaucracy would now agree to reduce the scope of its meddling at any point or consent to throw fewer monkey wrenches into our economic machinery. For every employer must be kept in constant fear of the Federal officeholders, no matter what he pays, and every worker must be made to feel that his welfare is dependent upon governmental favor.