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Minimum Wage Doomsayers Are Still Wrong After 74 Years

Posted: 06/25/2012 6:52 pm

Few American institutions have been subjected to such a consistent stream of vitriol and assault as the minimum wage that celebrates its 74th birthday this week. The first federal minimum wage was established when FDR signed the Fair Labor Standards Act (FLSA) on June 25, 1938. The FLSA also established the 8-hour day, paid overtime and child labor protections into federal law. Since then, it has been amended nine times to expand coverage and to raise the wage to keep it in line with the nation's economic growth.

Business leaders, industry associations, politicians and more recently think tanks opposed the FLSA and every legislative amendment since. They said it would destroy American civilization, kill jobs and hurt black people. Business owners predicted they would be forced into bankruptcy.

One business opponent of the 1938 legislation even warned the minimum wage would lead to the decline of the American empire. In 1937 Guy Harrington of the National Publishers Association testifying before a congressional committee claimed that "Rome, 2,000 years ago, fell because the government began fixing the prices of services and commodities. We, however, know what has always happened when governments have tried to superintend the industry of private persons. The final result has always been distress, misery and despair."

That same year the National Association of Manufacturers asserted that the FLSA "constitutes a step in the direction of communism, bolshevism, fascism, and Nazism."

Fast forward to 1960 and, despite those warnings, American democracy was alive and well. The American middle class was the largest in world history. That didn't stop the doomsaying.

Business lobbies claimed that a 1961 proposal to increase the wage would shutter thousands of businesses across the American heartland. Ernest Kuhn, the manager of the Hanford Hotel in Mason City, Iowa, said that the hotel would be forced to close if the wage was increased to $1.25 per hour. "There is not enough mechanization or automation yet developed to save my business from the minimum wage horror. If minimum wage legislation is passed by Congress, you will be able to buy hotels cheap."

Perhaps he was right. The Hanford Inn, operated by the Kuhn Hotel Corp. finally closed in 2009. The minimum wage is clearly a slow-motion killer. The minimum wage has been increased six times since 1961.

Similarly, Joseph E. Chastain, owner of Lintz's 10 department stores in Texas and Oklahoma said that a proposed 1966 increase from $1.25 to $1.75 per hour would devastate his business. "No company our size can live under such circumstances. Undoubtedly we would have to liquidate, which is a distressing situation to confront a solvent company that has operated profitably for over 60 years."

In yet more evidence of the slow-motion minimum wage disaster, Lintz's Texas store closed in 2000 and the entire chain closed all their stores in 2007.

The assault continued unabated in recent decades.

Economist Milton Friedman, interviewed in Playboy magazine in 1973 said, "I've often said the minimum-wage rate is the most anti-Negro law on the books. It's hard to believe that Friedman hadn't heard of the Jim Crow laws throughout the south.

In 1980, presidential candidate, Ronald Reagan, claimed that "The minimum wage has caused more misery and unemployment than anything since the Great Depression."

In 1993, the owner of Mega Management Company that owns 95 Burger King franchises in the U.S., Canada and the Netherlands said that "creeping socialism begins at the $5.05 level." As New York Times columnist Joe Nocera reported, the Burger King Corporation was purchased, leveraged and resold by Goldman Sachs and two private equity firms (including Bain, of course). The private equity firms pulled $1 billion out of the fast food company, funds that according to one Wall St. expert could have been used to help the struggling company -- and certainly to pay its employees a higher minimum wage.

And in 1995, Jack Farris, president of the National Federation of Independent Business claimed that President Clinton's proposed 90 cents per hour minimum wage hike from $4.25 to $5.15 was "a regressive and job-killing scheme which will put a big dent in small-business hiring." According to County Business Patterns data, employment in businesses with fewer than 20 employees grew by almost two million workers between 1995 and 2000. Oops.

Despite these (and more) constant predictions of doom, the minimum wage remains wildly popular in the eyes of the American people. They understand basic economics -- when wages go up, people spend more. Without minimum wage laws, employers pay less. They understand what I'll call "Chris Rock-onomics," the economic theory the comedian and social commentator described recently like this: "I used to work at McDonald's making minimum wage. You know what that means when someone pays you minimum wage? You know what your boss was trying to say? It's like "Hey if I could pay you less, I would, but it's against the law."

Happy Birthday, minimum wage.

 

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