There’s something strange about the idea of a minimum wage. It’s one of those subjects that everyone has a strong opinion about, even if they have no idea what makes actual economic sense. But perhaps the most surprising thing of all is that the minimum wage has a dirty secret that most economists don’t want you to know about. Today we explore The Dark History of the Minimum Wage.
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Minimum wage laws continue to be a political football issue in the United States, with the Fight For $15 movement and various organizations across the country campaigning for a living wage so that low-wage workers who are struggling to support a family can make ends meet.
On the surface, it seems like common sense. After all, if there were no minimum wage laws then greedy business owners would just employ slave labour, right? And it’s not like there’s any harm in raising wages. It’s a boon for the poor and a boon for the economy. Right?
But there’s something strange about the idea of a minimum wage. It’s one of those subjects that everyone has a strong opinion about, even if they have no idea what makes actual economic sense. And, as in most cases, what we don’t know about the economics of wage floors can hurt us.
But perhaps the most surprising thing of all is that the minimum wage has a dirty secret that most economists don’t want you to know about.
Today we explore The Dark History of the Minimum Wage.
This is The Corbett Report.
So why $15 an hour? Why not $20? Or $50? Heck, if we made the minimum wage $150 an hour we’d all be millionaires. Right?
JUSTIN MONTICELLO: So would you mind just putting an ‘X’ next to the minimum wage that you’d like to see?
INTERVIEWEE 1: Definitely not five dollars. Probably not a hundred dollars. I don’t know, I’m guessing 15 kind of seems about right.”
INTERVIEWEE 2: Probably 15/16 dollars an hour. Maybe even 17. Let’s go 18 an hour. What a laugh that is.
INTERVIEWEE 3: Let’s go $25 an hour, make it something real.
It may sound dumb at first, but why not? If $15 an hour is good, then surely $20 an hour is better. So why not more? What’s the actual economics at play here?
To understand the actual economic effects of minimum wage policies, we can turn to actual economists. Like Jacob Vigdor. He’s the head researcher of The Minimum Wage Study at the University of Washington, which is looking into the effects of Seattle’s recent minimum wage increase.
JACOB VIGDOR: So this all started back in 2014 when Seattle City Council passed an ordinance raising the minimum wage in stages. At the time the ordinance was passed, Washington State’s minimum wage was $9.47/hour. The policy increased the minimum wage in phases up to $15/hour on a different phasing schedule for businesses depending on their size and whether they offered health benefits. So the largest business reached the $15/hour level on January 1st of 2017; smaller businesses just reached the $15 level this year, January 1st of 2019. And so our efforts to study this have really focused on the initial years of the implementation in 2015 and 2016, the first steps up towards $15.
JAMES CORBETT: Alright, I guess the big question and the one that I suppose we could spend an hour talking about is: What did you find? What are the main findings of the study?
VIGDOR: What we found that was very surprising to people was this pattern where the number of people we observed working in the low-wage labor market, [and the] hours we observed people working in the low-wage labor market, reduced significantly. We generally found that the reductions in hours were sufficient to completely offset the increase in wages, so the total amount paid out in the low-wage labor market declined.
That was sort of the punch line of the first paper we released, and that was back in the summer of 2017. And then we came out with this follow-up paper, which added a lot more nuance to the story. And what we did there, instead of just tallying up the number of jobs and the number of hours worked [. . . ] we saw in the data and tracked them forward and understand what was happening to them.
So there the story was a little bit different. What we found, experienced workers—so workers who by the time the minimum wage starts going up [. . . ] by and large did fine. Their wages went up, they did not have any reduction in the likelihood of remaining employed, so they didn’t necessarily lose their jobs as a consequence of the minimum wage. They saw some slight reduction in the hours that they worked, but overall we found that they came out ahead to the order of about $20 a week. The less experienced workers, we did see that their wages went up but we saw them have a proportionately larger decrease in their hours and so they ended up more or less breaking even, you know, give or take.
So the picture that ends up being painted by all these patterns is that the people who we were really most concerned about, the people who have been in the low-wage labor market for a longer period of time, they do look like they are coming out ahead. But when we ask the question, where do these overall job losses come from, it comes from the greater reduction in hours for inexperienced workers. And if you were a worker who had no labor market experience with the higher minimum wage, what we’re seeing is that there are fewer of those types of new workers coming into Seattle’s labor market. So it’s becoming harder to get hired without prior experience. And that is one example of a piece of information that we got from, say, the administrative data analysis that would [. . .] by what we were hearing in our surveys with business owners, who were telling us, “Look, if I’m gonna hire someone for $13-$15 an hour, I want somebody who is experienced, I want somebody who I don’t have to train on the job.”
As the latest economic research is beginning to demonstrate, the minimum wage is not just a helping hand for low paid workers; it is at the same time a barrier to employment for the least experienced. After all, why pay a human an increasingly high wage to do what a robot can do for free?
For some, this is not an arcane field of study to be researched behind the walls of the academic ivory tower. It is a hard truth that reflects low-wage workers’ daily struggle to find work in an economy where the government is increasingly regulating them out of a job.
JIM EPSTEIN: In the past six years industries like car washes that employ low-skilled workers have been the target of lawsuits for alleged under-payment of wages. . .
ERIC SCHNEIDERMAN: . . . and they both engaged in rampant labor law violations.
EPSTEIN: . . . an ambitious unionization drive, and a successful campaign to raise the minimum wage in New York to $15 per hour.
ANDREW CUOMO: We’re going to lead the way. The nations are going to watch us and we’re going to raise up this state.
EPSTEIN: But here’s what really happened: Instead of helping New York’s low-wage workers, the movement is destroying their jobs. It’s pushed some car washes to replace their employees with machines and others to close down. Increasingly, workers have no choice but to ply their trade out of illegal vans parked on the street because the minimum wage has made it illegal for anyone to hire them at the going rate. At the same time, businesses that have chosen to automate are benefiting, because outlawing cheap labor makes it harder for new competitors to undercut them on price and service.
It seems like a great irony that the policies that are meant to help the poor are the same policies that are taking away their jobs. But in fact, this is not a bug in the policy; it’s a feature.
Economic historian Thomas C. Leonard has devoted extensive research to the economists and the economic ideas of the progressive era in American politics, which started in the late 19th century and achieved its zenith during the administration of Woodrow Wilson. In Leonard’s research, he documents how the first advocates of the minimum wage did not do so because they believed that a wage floor would help the poor to earn more money; they advocated for a minimum wage because it helps to disemploy the so-called “unemployables” and, it was hoped, eliminate them from the gene pool.
THOMAS C. LEONARD: The “unemployable” is a kind of buzz phrase that I think was probably coined by Sidney and Beatrice Webb, who were Fabian socialists, founders of the London School of Economics, and whose work was widely read by American progressives and with whom American progressives had a very kind of fruitful trans-Atlantic interaction with.
It’s a misnomer, of course, because the “unemployable” refers to people many of whom were actually employed. And the idea here is that a certain category of worker is willing to work for wages below what progressives regarded as a living wage or a fair wage and that these sorts of people, who were often called feeble-minded when they were mentally disabled, or defectives when they were physically disabled were doing the sort of transgressing in multiple ways.
The first thing was by accepting lower wages, they were undermining the deserving American working men or American really means Anglo-Saxon. The second thing is, because they were willing to accept low wages, the American worker was unwilling to do so—to accept these low wages—and so instead opted to have smaller families. That argument went by the name of race suicide.
LEONARD: The solution, by the way, to race suicide—a very potent solution which was first proposed by Richard T. Ely—was a minimum wage. And the idea [was that] if you had a minimum wage, you would sort the undesirables, who would lose their job if they were already working or would be deterred from coming to the United States in the first place. So if you have a minimum wage, you assure that only the most productive workers—who are assumed to be Anglo-Saxon, White Protestant men—will keep their jobs and get a raise, and all the inferiors of various types will either lose their job or will be deterred from coming in the first place. Only the most productive deserving workers keep their jobs and thus can afford to support larger families, thereby averting a race to the racial bottom.
In his work, Leonard demonstrates how this propensity for minimum wage laws to keep the poor, the “feebleminded,” the “shiftless,” and other “unemployables” out of the work force was not some fringe idea or unwanted side effect of these policies, but the main economic argument for putting these laws into place. The idea, according to its leading proponents, was to make sure that the undesirable workers would not be able to get work by undercutting the wages of more “respectable” labourers, and thus they would not be able to support families. By this process, the family trees of those deemed unworthy of the minimum wage would dwindle and the families of “better stock” who could earn their keep at a higher wage would flourish.
As alien as this thinking is to most of us today, it is part of a guiding philosophy of the progressive era: eugenics. As we learned in “Why Big Oil Conquered The World,” eugenics was the belief that the rich and powerful were, by virtue of their genes, fit to rule over the inferior classes, and that the poor suffered not from chance, fate, ingrained social hierarchy or other forms of injustice, but from poor genes.
JOE PLUMMER: Eugenics is basically a movement among the elite to eradicate what they deem the inferior classes, and that’s the inferior social classes, racial classes, ethnic classes. More or less everyone who isn’t up to their standards. And after eradicating those classes, what they aim to do is genetically engineer themselves to such a high level that the remaining population that they permit to exist beneath them will never have the power to overthrow them, essentially. The end of history.
So, the term itself was coined by Galton and it essentially means “well-born.” The idea is kind of a mix of a bunch of ideas that were circulating around the 1850s. So if you go back to, say, Mendel, Mendel was studying hereditary characteristics in pea plants. And he was able to determine that certain characteristics were being passed on and that these things could be determined and essentially predicted.
SOURCE: Why Big Oil Conquered The World
When eugenics was brought to the shores of turn-of-the-century America by Charles Davenport, it quickly received the support of the wealthy monopolists of the day, the Rockefellers and Carnegies chief among them. But more importantly, it appealed to the progressive academicians who were pioneering new fields of social science. These technocrats, convinced of the righteousness of their cause in spreading the “social gospel,” found purpose in the eugenic injunction to promote the reproduction of the “fit” and to weed out the “feebleminded” from the gene pool.
The early progressive economists made no attempt to hide their eugenic motivations in promoting minimum wage laws.
Take Henry Rogers Seager, a Columbia economist and president of the American Association for Labor Legislation, who wrote in a key paper on the minimum-wage law published in The Annals of the American Academy in 1913:
“If we are to maintain a race that is to be made up of capable, efficient and independent individuals and family groups we must courageously cut off lines of heredity that have been proved to be undesirable by isolation or sterilization of the congenitally defective. Michigan has just passed an act requiring the sterilization of congenital idiots. This may seem somewhat remote from the minimum wage but such a policy judiciously extended should make easier the task of each on-coming generation which insists that every individual who is regularly employed in the competitive labor market shall receive at least a living wage for his work.”
In 1910, Royal Meeker, a Princeton economist who served as Woodrow Wilson’s U.S. Commissioner of Labor, opined that:
“It is much better to enact a minimum-wage law, even if it deprives these unfortunates of work. Better that the state should support the inefficient wholly and prevent the multiplication of the breed than subsidize incompetence and unthrift, enabling them to bring forth more of their kind.”
Arthur Holcombe, a Professor of Government at Harvard and a member of the Massachusetts Minimum Wage Commission, wrote approvingly of how Australia’s own minimum wage laws:
“. . . protect the white Australian’s standard of living from the invidious competition of the colored races, particularly of the Chinese.”
This is the real history of the minimum wage in America. By their own admission, a belief in the eugenic effect of eradicating the lower classes from the gene pool is the reason that its early progressive proponents advocated for minimum wage laws at all.
Of course, no one is suggesting that the people marching under the Fight For $15 banner are eugenicists, or that they are trying to exterminate the “defective germplasm” of the “unemployables.” This is patently not the case.
Modern-day progressives instead turn to newer economic models and theories to defend their “living wage” movement. A highly cited 1994 study by Princeton economists David Card and Alan Krueger, for instance, purported to find that raises in minimum wage actually had, if anything, a positive effect on employment. If Card and Krueger’s findings are true, then, modern progressives might argue, it doesn’t matter why economists originally supported wage floors; the point is that they offer the working poor a hand up.
As the Minimum Wage Study at the University of Washington and similar research being conducted across academia are increasingly discovering, however, Card and Krueger’s paper (called an “intellectual revolution” by Paul Krugman) is incorrect or at the very least leaves out important details about the minimum wage’s true impact.
VIGDOR: Well, it’s sort of interesting that the Card and Krueger intervention in the literature in 1994 is almost resetting the debate. So you could you could read this history, the association of and it’s not just minimum wage policy that that ends up being associated [. . .] and a lot of these sentiments, immigration policy was tied up with these sentiments and all sorts of things. There was a consensus that emerged, sort of later on in the economics profession but before 1994, to say that okay well the minimum wage has these negative impacts, and so, you could read some of that as being a recognition of the flaws in the arguments that were presented in the Progressive Era.
Then you look at that Card and Krueger intervention and, well, hold on, as it turns out maybe these laws don’t actually result in unemployment after all. And so if the message that people believe is that minimum wages don’t cause unemployment then the the easy way to just sort of get around this sort of unseemly history of minimum wage policy is to say, well, you know that those folks back in the Progressive Era that were saying these nasty things, they were assuming that the minimum wage would have these impacts on the labor market, but it in fact they don’t, so it’s a moot point.
Now I think we want to move forward and if you look at what we’re finding here in Seattle during the period of time where it looks like the minimum wage was binding of competition and the minimum wage as a means of restricting competition in the labor market. There’s something to that, but I think that the way that it operates is as follows. A lot of . . . I’m the father of two teenage kids and I have an eleven-year-old to boot, so these younger kids, when they go out into the labor market, they are maybe looking to make a little bit of money, but they don’t need the money to pay the rent, they don’t need the money to pay for food or clothing, because, you know, they have parents to provide that for them. They’re looking to work in part because they want experience. They’re just looking for that kind of experience and their parents are probably telling them look, it’s a good thing to sort of learn the value of a dollar to just get this sort of thing on your resume. But from the perspective of someone who’s in the labor market to try to feed a family, competing with someone who is willing to work for almost any wage because the income is not really the main thing for them, that is the margin where we’re really looking these days.
The low-wage labor market is where you get some folks who are there because they’re trying to make a living and they’re trying to cover their living expenses, and you have another set of employees that are just not. They are in the labor market for a variety of reasons, but not because they will starve if they’re unemployed. And so you think about this minimum wage regulation, and if it has the impact of sort of making it tougher for those younger workers to get into the workforce, then it starts to look a little bit more like a child labor law, in effect. So that’s another Progressive Era initiative, that says, well, basically, there’s this ruinous competition between adults and kids and the kids are willing to do the work for a lot less, in part because they don’t have to support themselves.
So I guess that’s where the conversation ends up these days, but I think that if you were to point out to a minimum wage advocate that say, hey, you should read this historical literature that sort of shows that people advocated for this because they wanted to dis-employ certain types of individuals, the response is just gonna be well, okay, maybe that’s what they argued back then, but they were wrong about the dis-employment effects, so we’ll just sort of set that aside.”
In the end, perhaps it’s even worse that current-day minimum wage advocates don’t even know the eugenical roots of the minimum wage story. Minimum wage laws were never meant to give the poorest workers a hand up; they were meant as a barrier to entry for “undesirables” entering the labor force. And, as the case of the New York car wash workers and the latest economic research is bearing out, that is the effect that these laws are having even to the present day.
So as these laws continue to make it harder for the modern-day “unemployables” to find legal work, perhaps it’s time to re-insert this hidden history back into the debate about the minimum wage.