The Minimum Wage Makes Depressions Worse | National Review Online
By Amity Shlaes May 7, 2014
Joe Biden thinks it helped end the Great Depression. It actually extended it.
When Maryland governor Martin O’Malley signed a minimum wage of $10.10 an hour into law this week, U.S. labor secretary Tom Perez argued that a higher wage would help growth in Maryland, saying “it’s good for the economy.” The governor’s press release supplied the context: Maryland needs help so badly because the state has “faced the worst national recession since the Great Depression.”
Nor are Maryland politicians alone in working the Great Depression angle. Vice President Joe Biden likes to hold up for ridicule current critics of the minimum wage by pointing to the foolish negative reaction to the formal introduction of a federal statutory wage, back in 1938. “Now at the time,” Biden has said, in reference to the 1930s, “many said this would lead to job losses. Seriously.”
The vice president has it exactly backward.
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.
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