Minimum Wage: An Historical Viewpoint, Part 1

Adkins minimum wage decision

Metropolitan Hospital Infirmary Ward, 1900
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If you have spent much time reading my blog you will know that I have written quite a bit about the immorality of minimum wage laws. Such laws insert government force into what would otherwise be voluntary, mutually beneficial arrangements. Because such laws are immoral and violate the rights of both workers and employers, the results they produce are harmful to everyone, especially those they are intended to help, the young and unskilled. As I wrote in 2013:

2011 study came to the following conclusion:  “Minimum wage increases boost teenage wage rates and reduce teenage employment. But, evaluating the welfare implications is beyond the scope of this paper.” As to the welfare implications, a 2001 study from University of California-Berkeley stated: “These results confirm that the minimum wage lowers average income and increases inequality according to all standard measures.”

While today there is very little popular opposition to minimum wage laws, this was not always the case. I have recently been reading Amity Shlaes’ history of the Great Depression, The Forgotten Man, when I came across mention of a 1923 Supreme Court case where a minimum wage law was struck down as unconstitutional, something that would never happen today. One of the great things about reading books with the Kindle app on my tablet is that when I come across such references I can immediately look them up. What I found was Adkins V Children’s Hospital, a case where a law passed by Congress setting minimum wages for women and children within the District of Columbia was struck down. The decision in this case not only gave a view on minimum wage laws that is quite different from that held by the courts and most politicians today but also hinted out why this view has long since disappeared.

The first thing that really caught my attention in this case was that the appellee of one of the two cases which this decision resolved was an individual. A woman who worked as an elevator operator at a salary of $35 (about $500 today) per month and two meals per day. She believed “that the work was light and healthful, the hours short, with surroundings clean and moral, and that she was anxious to continue it for the compensation she was receiving, and that she did not earn more.”  It is hard to imagine that an individual worker would be granted standing today should they wish to oppose a minimum wage law.

What exactly is the nature of such a law? The decision by Justice Sutherland gives a nice summary:

It is simply and exclusively a price-fixing law… It forbids two parties having lawful capacity — under penalties as to the employer — to freely contract with one another in respect of the price for which one shall render service to the other in a purely private employment where both are willing, perhaps anxious, to agree, even though the consequence may be to oblige one to surrender a desirable engagement and the other to dispense with the services of a desirable employee.

Even if such price fixing could be justified, and it cannot, by what standard could you fix the price? In the case of this law, the standard was apparently based “wholly on the opinions of the members of the board and their advisers — perhaps an average of their opinions, if they do not precisely agree.”

The standard furnished by the statute for the guidance of the board is so vague as to be impossible of practical application with any reasonable degree of accuracy. What is sufficient to supply the necessary cost of living for a woman worker and maintain her in good health and protect her morals is obviously not a precise or unvarying sum — not even approximately so. The amount will depend upon a variety of circumstances: the individual temperament, habits of thrift, care, ability to buy necessaries intelligently, and whether the woman live alone or with her family. … For these reasons, and others which might be stated, the inquiry in respect of the necessary cost of living and of the income necessary to preserve health and morals, presents an individual, and not a composite, question, and must be answered for each individual considered by herself, and not by a general formula prescribed by a statutory bureau. [emphasis added]

It is this recognition of the individual that is most lacking in today’s discussion of minimum wage laws. Long gone are the days when each individual could decide for himself whether performing a job for a given wage was in his best interests. Now his individual interests are sacrificed to the needs of some ill-defined collective, “the poor.” No longer can he decide that it is in his interest to accept a lower wage for the chance to gain experience and advance in a career he finds interesting. Instead, the statists say, “We know best,” and not only prevent him from accepting a job at a rate of pay he finds acceptable, but also destroy those types of jobs in the process.

Without a job that pays $5 per hour, how will he every have the skills and experience to make $15 per hour? Will we soon live in a world where you need a college degree to be seen as qualified to make fries at McDonalds? In such a world, what happens to those who cannot, or choose not to, go to college? When they are priced out of the job market from the beginning, they are condemned to a lifetime of poverty and dependence.

In part 2 I will take a look at how this decision viewed business and in part 3, I think it will be part 3, I will look at the signs of things to come that can be found.

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