Wage Controls Past and Present

The Denver Post’s William Porter thinks it’s “good news” that Colorado’s minimum wage is going up in this time of economic trouble. But the effect of wage controls is to throw some people out of work, in this case some of those with the least experience trying to gain a foothold in the job market.

This past Wednesday I lamented the automatic increase in Colorado’s minimum wage. Yesterday I discussed some aspects of wage controls during the Great Depression. Here I discuss more of the background of wage controls as reviewed by Burton Folsom in his book, New Deal or Raw Deal?

Folsom notes that Congress imposed a minimum wage on Washington, D.C. in 1918 (page 113). The law required women to be paid $71.50 per month. The result? Congress Hall Hotel fired Willie Lyons, a woman working as an elevator operator for $35 per month, and hired a man for the same price. What a great way to help women.

Thankfully, the Supreme Court rejected the law, upholding the right “to freely contract with one another in respect of the price for which one shall tender service to the other in a purely private employment where both are willing, perhaps anxious, to agree.”

Folsom notes that wage controls were built into National Recovery Act codes until they were judiciously struck down in 1935 (page 114). Then in 1938 Congress passed a national minimum wage (page 114-15). The intent of the law was protectionism of New England industries, which were losing jobs to the lower-cost South.

The same year saw a return of the minimum wage in Washington, D.C. Folsom reviews, “Immediately after its passage, the Washington Post lamented, scores of maids and unskilled workers were laid off by local hotels” (page 115).

Folsom also discusses the fact that Social Security increased the cost of labor, also contributing to unemployment (page 116). Richard Vedder and Lowell Gallaway argue in Out of Work, “[N]early 1.2 million people were added to the unemployment rolls by 1938 because of the increases in labor costs associated with social insurance programs” (page 141).

Folsom, like Vedder and Gallaway, reviews too the harmful effects of union laws (pages 119-121).

Labor is not exempt from the laws of supply and demand. When wage controls push wages above their market rates, the result is unemployment. When politicians try to force businesses to pay employees more than they contribute, the result is that businesses fire people or decline to hire them. And yet we have Colorado “news” columnists proclaiming that wage controls are “good news.”

UPDATE: I have reviewed as much of Folsom’s book as I intend to. Following are links to previous articles on the Great Depression.

Yes, FDR Made Depression Worse and Longer

Politicians Caused and Worsened the Great Depression

Folsom Reviews FDR’s Errors

How Hoover and FDR Damaged Agriculture

‘Taxpayers… Bleeding at Every Pore’

Sirota and the New Deal