The minimum wage and other regulatory systems create entities that stand between the employer and the employee.
The relationship between employer and worker does matter. The employer who cannot set his business’s wages, or who must, whether or not he can afford it, increase wages, is an employer who is less likely to invest in his relationship with his employees. He is also less likely to hire and more likely to use a temp agency, to “nickel and dime” in the way that progressive cartoons mock. States and towns rarely supply institutions as wonderful as the Andrew Carnegie libraries. When rules intrude, the loss to personal ambition, workplace satisfaction, and civic culture is great. So great that perhaps someone will eventually figure out a way to quantify that.
The Minimum Wage Makes Depressions Worse
Many of us have always suspected that upward pressure on wages in the 1930s can’t have made it easier to hire. But only lately, in the last 10 or 15 years, has newer research formed a complete picture of what happened in the 1930s. It seems that the policy of upward pressure on wages, which is the idea of the minimum wage, made the Depression worse.
Here’s what happened. Back in the teens and ’20s, an era of technocrats and progressives, employers dropped wages in downturns — heck, that was better than laying people off. But employers wondered aloud whether higher wages would be good for business. The most famous of these was Henry Ford, who paid above market level on the theory that workers would use any extra money to “buy back the car.” In an individual business this can be true, especially when that business is simultaneously introducing technology, such as the Ford assembly line, that radically increases productivity.
Politicians who followed Ford but had not yet heard of John Maynard Keynes thought the same high-wage policy might work across the economy. President Herbert Hoover liked the idea enough that within months of the 1929 crash he hauled business leaders to Washington to browbeat them into sustaining higher wages. Ford actually committed to raising pay, to $7 a day from $6. Within two years Hoover also signed the Davis-Bacon Act, which mandated that government offices fulfilling construction contracts in various regions pay the “prevailing wage” for the workmen’s trade and for the region. The act put additional upward pressure on wages at a time when the economy could ill afford that. Unemployment abided and rose, rather than disappearing, as it had in a depression of the early 1920s.
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