David R. Henderson  

Using the Minimum Wage to Hamper Your Rivals

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In my 2001 book, The Joy of Freedom: An Economist's Odyssey, I told of how unions have pushed for minimum wage laws to hamper low-wage competition (traditionally much of that competition came from black workers) and how some firms have done the same. I wrote:

The loss in jobs caused by the minimum wage is not an accidental byproduct of higher minimum wages. It is the consequence intended by those who most avidly support increasing minimum wages. Unions don't support minimum wage increases because their own members are working at the minimum wage. Virtually all union employees--I've never heard of an exception--work at wages above the minimum. Northern unions and unionized firms, for example, have traditionally supported higher minimum wages to hobble their low-wage competition in the South. In the late 1960s, Otis Elevator pushed for an increase in the minimum wage in New York state because it had begun to specialize in converting human-operated elevators to automatic elevators and wanted an increase in demand for its services.

Forty years ago, the politicians who pushed for the increased minimum wage did not hide their motives. Nor, in an era of state-sanctioned segregation, did they feel the need to hide their knowledge of who the intended victims of minimum-wage increases would be. In a 1957 Senate hearing, minimum-wage advocate Senator John F. Kennedy of Massachusetts, who just four years later would be President of the United States, stated,

Of course, having on the market a rather large source of cheap labor depresses wages outside of that group, too--the wages of the white worker who has to compete. And when an employer can substitute a colored worker at a lower wage--and there are, as you pointed out, these hundreds of thousands looking for decent work--it affects the whole wage structure of an area, doesn't it?

Over at marginalrevolution.com, Alex Tabarrok shows that that motive may be alive and well in many businesses' support for minimum wage laws today. A New York Times reporter expresses surprise that businesses already paying more than the minimum wage would support an increase in the minimum.

There is, of course, another possible motive, which Alex points out. These businesses may support the increase because they believe paying higher wages is the right thing to do. But one of the easiest things to do in the world is to advocate that other people be forced to do what you're already doing voluntarily. There's nothing admirable about that whatsoever. One of Alex's commenters states that those who want to pay higher than the minimum are already paying for their views. But he misses the point of his own comment. If they're already paying, then the incremental cost to them of the minimum wage increase is zero.

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CATEGORIES: Labor Market

COMMENTS (6 to date)
Bruce Bartlett writes:

I'm reminded of the Seinfeld episode when Kramer gets a job. Seems he had actually been on strike for many years against a bagel shop. Eventually, the minimum wage rose to the wage that Kramer was striking for so the strike ended.

Chris writes:

I think the NYT reporter was correct to express initial surprise. The dollar cost might be zero, but there is a cost to the competitve advantage such a firm enjoys in attracting marginally more productive workers.

The motive for taking on this added cost could turn out to be racially motivated, however, the Otis Elevator example makes just as strong a case for simple bottom-line greed.

Looking at Marianne Dickinson's (she was the last business person quoted in the story) first reason for supporting the minimum wage hike supports the notion that there is a real, if not explicit cost in supporting the wage hike. However, the rest of her quote may or may not be all malarkey and none of the reasons given provide support for the deadweight loss on society and the very poor.

Steve Reilly writes:


Interesting as always. Do you have more info on that JFK quote? I'd like to be able to quote it in the future, but I'd want proper citation. I take it this is from the McClellan committee hearings? Do you or does anyone know if there's a transcript available? Thanks. --Steve Reilly

Babinich writes:

<sarcasm mode on>

I can't think of a better time to raise the federal minimum wage can you?

<sarcasm mode off>

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Dear Steve,
Here's the cite. BTW, it's on page 129 of The Joy of Freedom, footnote 11:
U.S. Senate, Labor and Public Welfare Committee, Proposals to Extend Coverage of Minimum Wage Protection, Hearings before the Subcommittee on Labor, 85th Congress, 1st session, March 20, 1957, p. 856.

Steven Reilly writes:

Thanks David.

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