Politics & Policy

Minimum Wage Equals Maximum Confusion

Despite the rhetoric, raising the minimum wage hurts the poor more than it helps them.

President Obama made headlines in January when he called for raising the minimum wage from $7.25 an hour to $9 and tying future increases to inflation. Politically, calling for a higher minimum wage is a winner. This week, New York’s state assembly voted to implement Obama’s plan locally. On the national level, Democratic congressman George Miller of California hauled out old-fashioned class-warfare rhetoric to justify his own minimum-wage proposal: “It’s become clear that corporations paying the minimum wage can now afford to pay more. It’s not more complicated than that.”

Oh, yes it is. Even some Democrats are raising questions about the wisdom of hiking the minimum wage when 83 percent of minimum-wage workers are teenagers or adults earning a second income, not heads of households. Labor Department data show a mere 4 percent of minimum-wage workers are single parents working full-time, compared with 5.6 percent of all U.S. workers. A higher minimum wage would price some marginal workers out of the job market, leading to more unemployment.

This week, Christina Romer, who chaired Obama’s Council of Economic Advisers from 2009 to 2010 and now teaches at the University of California, Berkeley, threw some cold water on the president’s proposal. She wrote in a New York Times op-ed that “robust competition is a powerful force helping to ensure that workers are paid” decent wages. A wage hike “may not be particularly well-targeted as an anti-poverty proposal” and could “harm the very people whom a minimum wage is supposed to help.” Noting that raising the minimum wage to $9 an hour would result in only about $20 billion in extra consumer spending — a pittance in a $15 trillion economy — she observed that “most economists prefer other ways to help low-income families,” and that “a job may ultimately be the most valuable thing for a family struggling to escape poverty.”

Some of her fellow Democrats agree with her. On the same day that New York’s state assembly approved a higher minimum wage, a Democratic-controlled committee of Arkansas’s house of representatives rejected raising that state’s minimum wage. Democratic governor Mike Beebe had earlier warned that raising the minimum wage by $2 an hour would be “problematic” and that he doubted it could pass the legislature.

It’s time for conservatives to take the offense against the minimum wage, which has a sordid history rooted in the Jim Crow era. The nation’s first mandated wage floor came during the Great Depression in the form of the Davis-Bacon Act of 1931, which set permissible levels of compensation for any federally financed or assisted construction projects. The “prevailing wage” levels set by Davis-Bacon are, in effect, almost always union wage rates.

In the 1920s and 1930s, African Americans made up the majority of unskilled construction workers in the South. Construction unions largely excluded them from membership, and as more and more African Americans moved north, unions were anxious to bar them from working on lucrative projects. As economist Walter Williams points out, the “racist intents were obvious” among the supporters of Davis-Bacon. William Green, the president of the American Federation of Labor at the time, noted that “colored labor is being brought in to demoralize wage rates.”

During the brief 40-minute debate the House held on Davis-Bacon in 1931, the racial motivation behind it was palpable. Representative Miles Allgood (D., Ala.) expressed his regret at the “bootleg labor” from his state that had been given work in the district of New York Republican Robert Bacon: “That contractor has cheap colored labor . . . and it is labor of that sort that is in competition with white labor. . . . It is very important we enact this measure.” Representative William Upshaw (D., Ga.) complained about the “superabundance or large aggregation of Negro labor.” Representative John Cochran (D., Mo.) commented that he had “received numerous complaints in recent months about southern contractors employing low-paid colored mechanics getting work and bringing the employees from the South.”

Davis-Bacon worked as intended. The next year, only 30 of 4,100 workers employed on the Boulder Dam project were black. More than 30 states followed the federal example and passed their own prevailing-wage laws.

The modern way to help the poor, as Christina Romer suggested, is either through increasing the earned-income tax credit or — much better — fostering economic growth that creates more jobs. Raising the minimum wage is a notion that can appeal to the public because it conjures up Grapes of Wrath imagery. But the conditions of the Great Depression that gave birth to the idea of the minimum wage no longer exist. Today, far from being a form of compassion, it is a blunderbuss approach that does more damage to its intended recipients than any help it provides.

— John Fund is a national-affairs columnist for NRO.


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