I’ve been doing a bit of historical research for a minimum wage paper and keep stumbling on these interesting and compelling ideas from the framers of that and similar policies (h/t: GL).
Arguments about minimum wages tend to be about two things: will it hurt its intended recipients and the businesses that employ them by raising labor costs, and is it well targeted? These are, of course, important questions. But while they were certainly entertained by the framers of the national policy back in the 1930s, their motivation went beyond these narrow questions. They viewed the minimum wage as a new, national standard.
Labor markets, like the broader economies in which they exist, are social and political constructs. They operate as much by laws, rules, and standards as by supply and demand. Laws against child labor, discrimination, overtime without extra pay, wage theft, and more are examples of hard fought standards that most Americans today recognize as integral to the functioning of labor markets.
The minimum wage was conceived in this same spirit. Testifying before Congress in 1937, Isador Lubin, the Commissioner of Labor Statistics, stressed that the minimum wage “…aims to establish by law a plane of competition far above that which could be maintained in the absence of government edict.” Other proponents argued that the policy would “underpin the whole wage structure…at a point from which collective bargaining could take over.”
Both Frances Perkins, FDR’s labor secretary, and later Roosevelt himself spoke of putting “a floor on wages and a ceiling on hours.” In this regard, we see that the framers had a very specific type of labor standard in mind, one that would block market outcomes widely perceived as market failures.
It was not at all hard to imagine back then that left to its own devices, given the excess of supply over demand and the non-existent bargaining power of low-wage workers, the “market” could drive wage offers down to pennies and desperate workers would have no choice but to accept such offers. Through the Fair Labor Standards Act, which created the federal minimum wage, Congress acted to correct that failure (the act’s objective was summarized as the “elimination of labor conditions detrimental to the maintenance of the minimum standards of living necessary for health, efficiency and well-being of workers”).
To this day, advocates and analysts supportive of higher minimum wages remain motivated by these goals. Yet the debate rarely invokes labor standards, and instead exists almost exclusively on technical grounds involving employment and price “elasticities” (responses to increases in the wage) and targeting (whether the wage reaches low-wage workers in low-income households). This emphasis sucks important oxygen out of the room. Instead of placing the debate in the context of market failure, it becomes a debate about market efficiencies.
No question, the failure of the low-wage labor market was far deeper in the 1930s than it is today—that’s one reason there’s less urgency around these issues. And no question that market efficiencies must be considered.
But while this isn’t the Depression, there are still too many low-wage workers who can’t make ends meet based what they’re paid, and the research shows that moderate increases in the minimum wage have their intended effect without creating large or even moderate market distortions. Given those realities, it is essential to reintroduce the concept of labor standards to the minimum wage and similar debates. To abandon that fight is to accept the persistence of a sub-standard labor market.