Wage Controls Cause Unemployment

Apparently Congressman Jared Polis is now a cosponsor of the Employee Free Choice Act, which would encourage more unionization by replacing the secret ballot with the non-secret "card check" process for demanding unionization. ["[T]he legislation would eliminate employers' right to insist that workers hold a secret-ballot election, while retaining the option for workers," Colorado Media Matters breathlessly clarifies, because we all know that the real motivation of union bosses is to "retain the option" to let employees vote by secret ballot.] Notably, the measure would amend the National Labor Relations Act, or Wagner Act, a law that significantly contributed to the economic downturn of 1937 and 1938 (as discussed.)

The basic issue is fairly straight-forward: federally encouraged unionization acts as a type of wage control, artificially boosting the monetary wages of some at the cost of lower wages and more unemployment for others.

As George Reisman explains, people acting on a free market adjusts to deflation by cutting prices and (nominal) wages, which gets the economy moving and sets the stage for gains in real wages. Full employment is necessary for full production: people who are out of work aren't producing goods and services.

A major problem with U.S. auto manufacturers is that unionization has seriously damaged the competitiveness of the U.S. industry. That's a big reason why tax payers are now asked to subsidize car makers, when many struggling firms should go into bankruptcy.

The fact that the U.S. struggles under wage controls -- and seems set to add more of them -- means that the economy cannot readily adjust to deflation. Another consequences is that the federal government has put the nation at risk of serious inflation by expanding the money supply.

As of January, the unemployment rate in Colorado was 6.6 percent, compared to 8.1 percent nationally. This is a big problem, though of course nothing like the unemployment rates during the Great Depression. As noted, even by the most optimistic figures unemployment never fell below 9 percent from the end of Hoover's term through FDR's first two terms.

A period of rising unemployment is the worst possible time for more severe wage controls.

Wage Controls Past and Present

The Denver Post's William Porter thinks it's "good news" that Colorado's minimum wage is going up in this time of economic trouble. But the effect of wage controls is to throw some people out of work, in this case some of those with the least experience trying to gain a foothold in the job market.

This past Wednesday I lamented the automatic increase in Colorado's minimum wage. Yesterday I discussed some aspects of wage controls during the Great Depression. Here I discuss more of the background of wage controls as reviewed by Burton Folsom in his book, New Deal or Raw Deal?

Folsom notes that Congress imposed a minimum wage on Washington, D.C. in 1918 (page 113). The law required women to be paid $71.50 per month. The result? Congress Hall Hotel fired Willie Lyons, a woman working as an elevator operator for $35 per month, and hired a man for the same price. What a great way to help women.

Thankfully, the Supreme Court rejected the law, upholding the right "to freely contract with one another in respect of the price for which one shall tender service to the other in a purely private employment where both are willing, perhaps anxious, to agree."

Folsom notes that wage controls were built into National Recovery Act codes until they were judiciously struck down in 1935 (page 114). Then in 1938 Congress passed a national minimum wage (page 114-15). The intent of the law was protectionism of New England industries, which were losing jobs to the lower-cost South.

The same year saw a return of the minimum wage in Washington, D.C. Folsom reviews, "Immediately after its passage, the Washington Post lamented, scores of maids and unskilled workers were laid off by local hotels" (page 115).

Folsom also discusses the fact that Social Security increased the cost of labor, also contributing to unemployment (page 116). Richard Vedder and Lowell Gallaway argue in Out of Work, "[N]early 1.2 million people were added to the unemployment rolls by 1938 because of the increases in labor costs associated with social insurance programs" (page 141).

Folsom, like Vedder and Gallaway, reviews too the harmful effects of union laws (pages 119-121).

Labor is not exempt from the laws of supply and demand. When wage controls push wages above their market rates, the result is unemployment. When politicians try to force businesses to pay employees more than they contribute, the result is that businesses fire people or decline to hire them. And yet we have Colorado "news" columnists proclaiming that wage controls are "good news."

UPDATE: I have reviewed as much of Folsom's book as I intend to. Following are links to previous articles on the Great Depression.

Yes, FDR Made Depression Worse and Longer

Politicians Caused and Worsened the Great Depression

Folsom Reviews FDR's Errors

How Hoover and FDR Damaged Agriculture

'Taxpayers... Bleeding at Every Pore'

Sirota and the New Deal

Job Killer

We are in a rough economy. More people are losing their jobs. Some businesses are having a hard time making it. Therefore, obviously, this is a great time for the automatic increase to Colorado's minimum wage, ensuring that the least-skilled, youngest people looking for a job will have a harder time finding one.

As the AP reports, the minimum wage will go up to $7.28, and to $4.26 for tipped employees, tomorrow.

Of course, the real minimum wage is zero, and that is the wage that more entry-level workers will now be receiving, thanks to Colorado's "progressive" community. But, hey, the progressives will be there to save the poor unemployed with food stamps, Medicaid, etc.

Thankfully, the kids of yuppy "progressives" can continue live off their parents as they work for free as interns, thereby "exploiting" themselves into high-paying jobs later on.

Regressives Harm Minority Youth

Recently the Colorado Progressive Coalition bragged about helping to pass the 2006 wage controls.

Congratulations: you've put some inexperienced minors out of a job, ensuring that they'll lack the job experience needed for higher pay later.

Kristen Lopez Eastlick writes for Examiner.com:

This year, it's harder than ever for teens to find a summer job. Researchers at Northeastern University described summer 2007 as "the worst in post-World War II history" for teen summer employment, and those same researchers say that 2008 is poised to be "even worse."

According to their data, only about one-third of Americans 16 to 19 years old will have a job this summer, and vulnerable low-income and minority teens are going to fare even worse.

The percentage of teens classified as "unemployed" -- those who are actively seeking a job but can't get one -- is more than three times higher than the national unemployment rate, according to the most recent Department of Labor statistics.

One of the prime reasons for this drastic employment drought is the mandated wage hikes that policymakers have forced down the throats of local businesses. Economic research has shown time and again that increasing the minimum wage destroys jobs for low-skilled workers while doing little to address poverty.

Yet, not only does the group call itself "progressive," but it brags about promoting a policy that hurts poor minority youth.

The only real progressives in the state are the ones advocating liberty, free markets, and individual rights.