The Minimum Wage: A 75th Anniversary That’s Not Worth Celebrating
Author: Michael Saltsman
Publication Date: June 2013
Newspaper: Huffington Post
Topics: Minimum Wage
This week marks the 75th anniversary of the Fair Labor Standards Act, and Iowa Senator Tom Harkin is in a celebratory mood. The Senate Health, Education, Labor, and Pensions committee, which Harkin chairs, is holding a full committee hearing to honor the federal minimum wage and promote Harkin’s latest effort to boost it to $10.10 an hour, the Fair Minimum Wage Act of 2013.
But Harkin’s hagiography of the federal minimum wage doesn’t fit with the historical evidence. Instead of creating a “foundation of fairness,” the federal minimum wage has kept generations of young adults and other less-experienced jobseekers from acquiring the foundational skills needed to advance in the workforce.
It’s time to correct the record.
Senator Harkin has dismissed as a “myth” the notion of employment declines associated with changes to the federal minimum wage. His predecessors, however, were not so blind. The policymakers and bureaucrats present at the creation of the FLSA were keenly aware of this risk. For instance, the Administrator of the Wage & Hour Board was instructed to establish a minimum wage at a level “which will not substantially curtail employment.” Predictably, this was an imperfect process: A 1939 Labor Department report found that some of those earning less than the new federal minimum “had been laid off and replaced by more efficient workers.”
Early economic analyses in the 1940s found adverse employment effects associated with the minimum wage in the cottonseed industry in the South. But the minimum wage in its early years was generally a skilled wage, covering just over 40 percent of the non-exempt workforce in industries like mining and manufacturing. It wasn’t until a series of amendments to the FLSA in the 1960s that the minimum wage was expanded to cover the retail and service businesses where most employees who are paid that wage work today.
In 1977 — a few years after then-Rep. Tom Harkin first came to Washington, DC — Congress decided it was necessary to take a closer look at the consequences of the FLSA’s minimum wage provisions. To help “resolve the many controversial issues that have surrounded the federal minimum wage,” Congress established a Minimum Wage Study Commission. Four years later, in a seven-volume report, the Commission established what would become the consensus view in economics: That each 10 percent increase in the federal minimum wage reduces youth employment by anywhere from one to three percent.
The Commission released its report at the tail end of a four-step hike in the federal minimum wage, and the timing was prescient: A combination of the mandated higher labor costs and an economic recession resulted in the highest youth unemployment rates then on record, peaking at 23.2 percent in 1983. It’s a mistake that Congress would repeat again nearly twenty-five later in 2007, voting to raise the federal minimum wage by 40 percent — even in the midst of the worst recession since the early 1980s. Economists at Miami and Trinity University have subsequently estimated that teen employment fell by nearly seven percent in states that experienced all three stages of the wage hike–the equivalent of 114,400 teen jobs.
It’s these lost opportunities that represent the true legacy of the federal minimum wage established by the FLSA. As the cost to hire, train, and retain entry-level labor has been pushed steadily higher by Sen. Harkin and others, gas stations have discovered that it’s far less expensive to let the customer pump it themselves, and grocery stores have realized that customers don’t mind bagging their own groceries. Customers may view these self-service alternatives as “conveniences,” but they’re conveniences that used to be part of someone’s job description–hence the 24.5 percent unemployment rate facing America’s teens today.
The federal minimum wage provision of the FLSA stands as a monument to the unintended consequences of well-intentioned laws. Appropriately, Harkin’s hearing is taking place in the midst of a teen unemployment crisis that the minimum wage helped create. Its 75th anniversary is not a cause for celebration, but for sorrow — especially for young adults past, present, and future that can’t move up the career ladder because their elected representatives have chopped off the bottom rung.
Michael Saltsman is the research director at the Employment Policies Institute. The Employment Policies Institute also runs www.minimumwage.com andwww.tippedwage.com, which explore the relationship between wages and employment.