Friday, July 26, 2013

The High Cost of Wage Hikes

IT OUGHT TO BE OBVIOUS THAT MINIMUM WAGE laws hurt most the very people they are designed to “protect.” When a law exists that no one is to be paid less than $64 for a 40-hour week, then no one whose services are not worth $64 a week to an employer will be employed at all. We cannot make a man worth a given amount by making it illegal for anyone to offer him less. We merely deprive him of the right to earn the amount that his abilities and opportunities would permit him to earn, while we deprive the community of the moderate services he is capable of rendering. In brief, for a low wage we substitute unemployment.

Yet we initiated the folly of a Federal minimum wage law 30 years ago, and we have been compounding that folly ever since. The first Labor Standards Act of 1938 fixed a minimum wage of 25 cents an hour. This was raised to 30 cents in 1939, 40 cents in 1945, 75 cents in January, 1950, $1.00 in March, 1956, $1.15 in September, 1961, $1.25 in September, 1963, $1.40 in February, 1967, and $1.60 in February, 1968.

In 1938 the average hourly wage in manufacturing industries was 62 cents an hour. In January, 1968, it was $2.64 an hour. But our legislators, not content with this general rise in wages due to more and better tools and natural economic forces, have decided to keep raising the legal minimum wage even faster than the fast-rising market average. Thus the statutory minimum was only 29 per cent of average hourly earnings in manufacturing just before the increase in 1950, but 40 per cent before the increase of the minimum in 1956,43 per cent before the increase in 1961, 47 per cent before the increase in 1963, and 54 per cent before the increase in 1968. The consequence of this is that the legal minimum wage was pushed up 114 per cent between early 1956 and 1968, though average hourly earnings in manufacturing rose only 55 per cent. Meanwhile, the Federal minimum wage has become effective over a far greater range.

The net result of all this has been to force up the wage rates of unskilled labor much more than those of skilled labor. A result of this, in turn, has been that though an increasing shortage has developed in skilled labor, the proportion of unemployed among the unskilled, among teen-agers, females and non-whites has been growing.

The outstanding victim has been the Negro, and particularly the Negro teen-ager. In 1952, the unemployment rate among white teen-agers and non-white teen-agers was the same—9 per cent. But year by year, as the minimum wage has been jacked higher and higher, a disparity has grown and increased. In February of 1968, the unemployment rate among white teenagers was 11.6 per cent, but among non-white teenagers it had soared to 26.6 per cent.

In addition to the direct harm done by the minimum wage in creating unemployment among the unskilled, it must bear at least part of the blame for the recent riots in the cities—where the unemployed are concentrated.

The statistical evidence showing that the minimum wage has caused unemployment among Negroes and the unskilled is extensive. It is gratifying to report that some of the country’s outstanding academic economists—Professors Yale Brozen, Arthur Burns, Milton Friedman, Gottfried Haberler, James Tobin, to mention a few—have gathered this evidence and presented a conclusive case against a statutory minimum wage. Yet successive Administrations and Congresses have persistently refused to accept their logic or to face the glaring facts.

There are other labor laws, antedating the minimum wage, that have had even worse consequences. In the early Nineteen Thirties the theory grew up that wages were too low and workers were exploited because there were not enough unions and those that existed had too little bargaining power. The proposed remedy for this was to create more and stronger unions, and the way to do that was to forbid employers to discriminate against union workers in hiring, in promoting, or in granting wage increases. Therefore, in 1935 Congress passed the Wagner Act, which gave unions the right to “bargain collectively through representatives of their own choosing” and prohibited employers from engaging in a whole list of “unfair labor practices.”

The Wagner Act was completely one-sided, hypocritical, and self-contradictory. On the one hand, it pretended to be two-sided by making it an unfair labor practice “by discrimination in regard to hire or tenure of employment or any term or condition of employment to encourage or discourage membership in any labor organization.” But immediately following this was a provision declaring that “nothing in this act  . . . shall preclude an employer from making an agreement with a labor organization . . . to require as a condition of employment membership therein.” In brief, the law prohibited an employer from discriminating against union members, but permitted and encouraged (and often in fact compelled) him to discriminate against non-union members.

The Wagner Act proved so viciously one-sided in practice that in 1947 Congress amended it in the Taft-Hartley Act. But the Taft-Hartley Act, contrary to popular impression, changed little of substance. And the National Labor Relations Board has successfully ignored or circumvented the provisions that did.

The factual situation today is that the compulsory union shop can be forced on employers and workers in the majority of the states. If a union makes an exorbitant demand, the employer cannot simply refuse to meet it. He is compelled by the Taft-Hartley Act to keep “bargaining” with that union and no one else. If he announces that he will regard strikers as having quit their jobs, and will carry on his business by hiring workers to replace them, his plant will be surrounded by pickets to intimidate anyone who thinks of passing through. And because of the legal roadblocks set up by the Norris-LaGuardia Act of 1932, he will probably be unable to get injunctive relief in the courts, even from crippling vandalism and violence.

The “right to strike” is interpreted today not merely as the right to quit work, but the “right” forcibly to prevent others from taking the jobs that the strikers have voluntarily vacated. The Taft-Hartley Act, amending the Wagner Act, specifically provided that “to bargain collectively  . . . does not compel either party to agree to a proposal or require the making of a concession.” But the employer is in fact compelled to make concessions. He is compelled to make them because unions today enjoy a special license to keep a plant closed by intimidatory mass picketing until their demands are met. If an employer does somehow succeed in keeping his plant open, and peaceably replacing strikers to carry on his business, the Labor Board is likely to come along years later, as it has done time and time again, and rule that by finally ceasing to “bargain” with the original union that struck he violated the Taft-Hartley Act and must therefore re-employ the original strikers, with retroactive pay to cover the period of their unemployment.

Yet this factual situation is ignored by practically everybody as if it did not exist. When a particularly outrageous or disruptive strike halts vital services, and a few congressmen begin to demand compulsory arbitration, they are told that the government should not intervene but allow the processes of “free collective bargaining” to continue.

It is true that compulsory arbitration is not the solution. But it is not true that the “collective bargaining” taking place is “free.” The government is in fact intervening every day through its one-sided laws. It is already a participant on the side of the striking union. It is granting special immunities to the union to use intimidation and violence. It is putting special compulsions on the employer to yield to the demands of the union, or to grant costly concessions, for fear of the even more costly or perhaps mortal penalties if he breaks off negotiations with the union members on strike and decides to employ replacements.
By the Norris-LaGuardia Act of 1932, by the Wagner Act of 1935 and the Taft-Hartley amendments of 1947, by loaded decisions pouring out daily from the National Labor Relations Board, and by the failure of local authorities to provide adequate police protection to employers and workers trying peaceably to carry on a struck business, we are daily forcing up wage rates to points that threaten to bring the economy to a halt, unless more money is printed so that demand, prices, and profit-margins can keep pace.

For thirty years we have been in an unending race between the printing press and the demands of the labor unions. Instead of showing any signs of slowing to a halt, the race is becoming more determined and more desperate on both sides.

Man vs. The Welfare State

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