Thursday, August 19, 2021

Minimum Wage Economics and Fallacies: Minimum Wage’s Biggest Fans, Part 1—White Racists, Xenophobes, Labor Unions, and Leftist Intellectuals

Click here to read the original Cautious Optimism Facebook post with comments

"[The minimum wage will] protect the white Australian’s standard of living from the invidious competition of the colored races, particularly of the Chinese.”

-Harvard Professor Arthur Holcombe (1912)

Countless black workers were deliberately and calculatingly 
 driven from their jobs by early 20th century minimum wage laws

7 MIN READ - The Cautious Optimism Correspondent for Economic Affairs and Other Egghead Stuff offers CO readers a short break from Afghanistan and Covid with a column on the racist origins of minimum wage laws.

Yes, you read that right. The roots of minimum wage laws lie with racism, unions, and left-wing academics blocking people of color and nonunion workers from getting good jobs going back to the early 20th century. And we’ve got the quotes to prove it.


In the 1910’s states such as Massachusetts, California, Arkansas, and others passed America’s first minimum wage laws. In the 1930’s President Franklin Roosevelt pushed for the first national minimum wage.

During the entire two-plus decades, white workers and unions across the country threw their political weight behind all these legislative efforts. Despite their public rhetoric championing the higher wage floor to help their laboring brothers and sisters, the truth is it was all a cynical attempt to price their nonwhite and nonunion competition out of the market.

The math behind this calculated effort is childishly simple so before looking at the historical evidence we’ll illustrate with a single example:

Take white, unionized shop worker A and black, nonunionized worker B in right-to-work state C.

A is more skilled, more productive and can make 4 widgets per hour, but he and his union colleagues demand $18 per hour.

B is less skilled and can only make 3 widgets per hour, but he only asks for $12 per hour.

So in an eight hour day A makes 32 widgets for $144 ($4.50 per widget) while B makes only 24 widgets for $96 ($4.00 per widget).

Even though our nonwhite worker isn't as productive (yet) as his white counterpart, he also asks for less money. Our employer calculates he can hire three employee A’s to make 96 widgets a day or four employee B’s to make exactly the same number, and operating in right-to-work state C (no "closed shops"), he opts for nonunion B employees who are more economical.

Union A workers could still be competitive if they asked for salaries more in line with their productivity (ie. $16 instead of $18), but historically unions haven't been keen to operate within the voluntary marketplace and looked instead to government to tilt the playing field in their favor.

They also worry that with some on-the-job training those minority nonunion workers might get better at the job, eventually match their productivity, and get pay raises even as they continue to economically outperform their white counterparts. 

Thus during the early 20th century white and unionized workers devoted a great deal of time and effort devising strategies to stop minorities and nonunion workers from getting those "foot in the door" starting jobs that might threaten their stranglehold over their respective trades.

The solution? Press the government to raise the minimum wage to $15 per hour.

The union wage remains unchanged at $18 since it’s still above the minimum wage, but the minority worker's wage is forced up from the previous $12 per hour to $15. 

The nonwhite worker's productivity hasn't increased, but thanks to the government the cost of hiring him has.

The cost of worker A remains $18 an hour for four widgets ($4.50 per widget) but now the cost of worker B is $15 an hour for three widgets ($5 per widget). 

Worker B is now no longer competitive.

Minimum wage therefore prices our nonwhite and nonunion workers right out of the factory which was the objective all along. 

Minority workers are then pushed out towards less desirable, lower paying jobs in agriculture, domestic work, or waiting tables—shut out of the blue collar factory workforce. The opportunity to work, learn new skills, raise their productivity and pay, earn a good living, and build a career is denied to them, proven by the “employment segregation” which was so common for at least the first half of the 20th century.

Unions claim this was never their strategy, but unions have also employed small armies of their own economists since the Progressive Era and the minimum wage analysis is a simple math problem that any high school student can solve. So yes, clearly the leadership knows what it’s doing even if the rank and file may not.

As economist Gary Wolfram recalls when acting as a Congressional Chief of Staff in the 1990’s, he was approached by labor union lobbyists pushing for another increase in the minimum wage. They were taken aback when he replied…

“Why are you guys here? None of your members make less than the minimum wage… …Well you’re here because you want to raise the price of a substitute… … to increase the price of a substitute for high skilled labor which is low skilled labor. And once I do that I’m going to substitute capital for labor and demand more high skilled labor and that’s why you’re here.”

During the early 20th century white Australian workers also used the same minimum wage strategy to price lower-wage Chinese workers out of the market, white Canadian workers used minimum wage to bar Japanese immigrants from their workplaces, American workers pushed hard for minimum wage to throw black workers out of their jobs, and white workers in apartheid South Africa did the same even in the late 20th century.


In the 21st century most labor unions and racists won’t come out and openly admit their goal is to price their minority or nonunion competition out of work. Instead they and their paid economists wail that they “care about the living standards of their fellow workers” and are only expressing solidarity with laboring classes against exploitative businessmen everywhere. 

And feelgood liberals fall for the narrative hook, line, and sinker a la P.T. Barnum.

But white and union workers haven’t always been so discreet about their nefarious goals. 

Their motivations were much more openly expressed in the early 20th century as the introduction of minimum wage laws was being debated. Starting as early as the Progressive Era whites, unions, and academic eugenicists praised minimum wage's prospects for preventing the “inferior races” from earning a better living and thereby “breeding” and “increasing their numbers…”

1) Royal Meeker, Woodrow Wilson’s labor commissioner and a Princeton economist argued in 1910 that:

"It is much better to enact a minimum-wage law even if it deprives these unfortunates of work. Better that the state should support the inefficient wholly and prevent the multiplication of the breed than subsidize incompetence and unthrift, enabling them to bring forth more of their kind."

2) Harvard Professor Arthur Holcombe wrote approvingly of Australia’s proposed minimum wage as it would shut Chinese immigrants out of the labor market. Writing in 1912 Holcombe cheered:

“[The minimum wage will] protect the white Australian’s standard of living from the invidious competition of the colored races, particularly of the Chinese.”

3) A minimum wage was passed in British Columbia, Canada in 1925 for the same purpose: to shut Japanese immigrants out of the lumber labor market.

4) Progressive Columbia economist Henry Rogers Seager stated:

"The operation of the minimum wage requirement would merely extend the definition of defectives to embrace all individuals, who even after having received special training, remain incapable of adequate self-support…..If we are to maintain a race that is to be made up of capable, efficient and independent individuals and family groups we must courageously cut off lines of heredity that have been proved to be undesirable by isolation or sterilization . . . ."

5) University of Wisconsin economist John R. Commons wrote in his book “Races and Immigrants”:

“[Wage] competition has no respect for the superior races. The race with lowest necessities displaces others.”

6) And the late free-market economist Walter Williams documented the publicly affirmed minimum wage strategy of apartheid South African white unions as recently as 1989 in his book “South Africa’s War Against Capitalism.”

Williams writes:

“During South Africa's apartheid era, white unionists argued ‘in absence of statutory minimum wages, employers found it profitable to supplant highly trained (and usually highly paid) Europeans by less efficient but cheaper non-whites.’”

“One South African union leader said, ‘There is no job reservation left in the building industry, and in the circumstances I support the rate for the job (minimum wages) as the second best way of protecting our white artisans.’”

“The South African Nursing Association condemned low wages received by black nurses as unfair. Some nurses said they wouldn't accept wage increases until the wages of black nurses were raised…”

“…You can bet the farm that these calls for minimum wages for blacks didn't represent white compassion for the welfare of blacks. Minimum wages are simply one of the most effective tools in the arsenals of racists everywhere.”

(Correspondent’s note: the demands of white South African nurses that all wages be raised before their own echoes of modern-day corporations Amazon and Starbucks demanding a nationwide increase in minimum wage, a strategy we will cover in the next column)

So as woke “Fight for $15” and “living wage” advocates drone away to raise the minimum wage most have no idea they are realizing the dream of white supremacists and anti-immigrant xenophobes a century-over, even as they accuse minimum wage opponents of being the "racist” and “anti-immigrant" ones.

Even more strange is the entire progressive Left and mainstream media, who in the era of Trump and Biden leave no pebble unturned searching for any hint of racism real or imagined, have been completely silent on the adoption of a policy that was blatantly racist for most of the last century.

In fact minimum wage advocates and the press even portray the Fight-for-$15 as a "struggle against Jim Crow” and liken their cause to the civil rights movement, all while ignorant of their own agitation for precisely the instrument of discrimination that white racists embraced during the real Jim Crow era (CNN: “The Fight for $15 Takes on the Jim Crow Economy” and Time: “The Fight for $15 is our Selma”).

Well the strategy has worked, just as it worked a century ago.

Given that federally mandated wage floors have long been placed higher than the productivity (or what economists call Marginal Revenue Product) of swaths of unskilled minority workers it’s no surprise that black and Hispanic unemployment has consistently run several points higher than joblessness for whites going back nearly a century (see charts). 

The minimum wage dream of shutting minority labor out of the workforce has been realized by the progressive Left for a hundred years, and today they continue the fight to raise the bar even further.

(Federal Reserve charts: black and black youth historical unemployment rates)

No comments:

Post a Comment

Note: Only a member of this blog may post a comment.