Gunnar Myrdal on Minimum Wages
By David Henderson
Yesterday, Chris Koresko, one of the commenters on my post on how the minimum wage had helped destroy the tuna canning industry in Samoa, stated:
Please correct me if I’m wrong, but my vague memory is that the first minimum wage law in the U.S. was enacted explicitly to improve the lot of white workers by reducing competition from black workers in a particular industry. Is this true?
There’s at least an element of truth. Proponents of the minimum wage, when it was legislated in 1938, were disproportionately from Northeastern high-wage states where a minimum wage would be binding only on a very small segment of the labor force. They used it to narrow the differential in wages between the Northeastern states and the Southeastern states, where black men were a much higher fraction of the labor force and where the minimum wage would be binding on a much higher fraction. I posted about the role of Senator John F. Kennedy in the 1950s and his explicit statement that he wanted to hobble competition from black labor.
The economist who laid out most clearly the devastating effect of the minimum wage on black labor was Swedish economist Gunnar Myrdal in his classic 1483-page study, An American Dilemma: The Negro Problem and Modern Democracy, Volume 1, 1944. I highlighted his thoughts in my biography of him in The Concise Encyclopedia of Economics.
Here’s an excerpt from the bio:
During the ‘thirties the danger of being a marginal worker became increased by social legislation intended to improve conditions on the labor market. The dilemma, as viewed from the Negro angle is this: on the one hand, Negroes constitute a disproportionately large number of the workers in the nation who work under imperfect safety rules, in unclean and unhealthy shops, for long hours, and for sweatshop wages; on the other hand, it has largely been the availability of such jobs which has given Negroes any employment at all. As exploitative working conditions are gradually being abolished, this, of course, must benefit Negro workers most, as they have been exploited most–but only if they are allowed to keep their employment. But it has mainly been their willingness to accept low labor standards which has been their protection. When government steps in to regulate labor conditions and to enforce minimum standards, it takes away nearly all that is left of the old labor monopoly in the “Negro jobs.”
As low wages and sub-standard labor conditions are most prevalent in the South, this danger is mainly restricted to Negro labor in that region. When the jobs are made better, the employer becomes less eager to hire Negroes, and white workers become more eager to take the jobs from the Negroes.
Mydral added, in the following five sentences that I didn’t quote:
There is, in addition, the possibility that the policy of setting minimum standards might cause some jobs to disappear altogether or to become greatly decreased. What has earlier hindered mechanization has often been cheap labor. If labor gets more expensive, it is more likely to be economized and substituted for by machines. Also, inefficient industries, which have hitherto existed solely by exploitation of labor, may be put out of business when the government sets minimum standards. These effects may not show up all at once.
It’s interesting that he uses the word “exploitation” to refer to an exchange in which both sides gain. I wonder if he was playing to his audience and didn’t dare not use the word. In any case, his meaning is clear: the minimum wage at the time helped white higher-wage workers at the expense, in part, of black lower-wage workers and sometimes wiped out “inefficient” (I’m not sure what he meant by that word) industries.
Interestingly also, a few pages later, he goes after unions for making it hard for black workers. For more on that, not from Myrdal, but from a modern labor economist, see Morgan Reynolds, “Labor Unions,” in The Concise Encyclopedia.