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Maximum Misunderstanding of the Minimum Wage

Posted By Don Boudreaux On June 30, 2013 @ 9:41 pm In Great Depression,Myths and Fallacies,Reality Is Not Optional,Work | Comments Disabled

Here’s a letter to the Los Angeles Times:

Michael Hiltzik’s “Debate over minimum wage reignites decades-old arguments [1]” (June 29) is flawed by several half truths and leaps of illogic.  Here are two examples.

First, no credible minimum-wage skeptic contends that raising that wage “would have a disastrous effect on the economy.”  That wage (fortunately!) is set so low that it affects only a small fraction of American workers.  And those relatively few affected workers, being unskilled, are in many cases easily replaced with machines.  Both the smallness of the portion of the workforce affected and the easy mechanization of tasks performed by unskilled workers ensures that minimum-wage legislation isn’t disastrous for the economy.  Such legislation, however, is often disastrous for those flesh-and-blood workers who, because of the minimum wage, lose their jobs or are obliged to toil at worse jobs.

Second, Mr. Hiltzik confuses publicly trumpeted motives for actual effects – a confusion revealed by his claim that “in addressing its citizens’ economic dignity, the America of the Thirties was smarter and more humane than the America of today.”  The average annual unemployment rate for the 1930s was, on the most F.D.R.-friendly measure, 14.1 percent.  (Other measures put it at 18.2 percent.)  That rate was never lower than its 1930 level of 8.7 percent, while on F.D.R.’s watch during the 1930s it never fell below 9.1 percent.*

Anyone who considers these statistics along with the reality that the Fair Labor Standards Act of 1938 was, in fact, an attempt by politically powerful northeastern textile producers to crush competition posed by low-wage – and often black – textile workers in the south can be forgiven for dismissing Mr. Hiltzik’s uncritical praise of the New Dealers’ intelligence and humanity.

Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA  22030

* See, for example, Table 1 in this 1993 JEP article by Robert Margo. [2]

(I thank Cristian Reyes for alerting me to Hiltzik’s essay.)

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[1] Debate over minimum wage reignites decades-old arguments: http://www.latimes.com/business/la-fi-hiltzik-20130630,0,1818704.column

[2] this 1993 JEP article by Robert Margo.: https://fraser.stlouisfed.org/docs/meltzer/maremp93.pdf

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