On June 16th, 1933 F.D.R. gave a speech on the just-enacted National Industrial Recovery Act. Although the law never lived to see its second birthday, being declared unconstitutional in 1935 (Schechter Poultry Corp. v. The United States), it did yield a snappy line that, zombie-like, never dies, and lives on in the memedom of the internet:
It seems to me to be equally plain that no business which depends for existence on paying less than living wages to its workers has any right to continue in this country.
In lieu of silver bullets or a wood stake, let’s try to dispatch the undead with an even more lethal weapon: brutal, unflinching logic.
Let’s imagine three businesses, all selling roughly the same thing, say baseball bats.
- Company X, the oldest of the companies, makes their bats in Alabama. They have old equipment, from the 1950s. It is not the fastest in the world, but it gets the job done. The process is completed by 10 low skill workers who do the final sanding, varnishing and inspection. They earn minimum wage.
- Company Y is a new entrant to the field. They use computer-controlled lathes and all the latest automation. Their automation even does the sanding and varnishing. To supervise this process requires fewer workers. In fact they only need 2 people. But because of the higher skills these two need, the company needs to offer 5x minimum wage in order to attract workers with the right skills.
- Company Z has a website. They sell baseball bats drop shipped from suppliers in China and Vietnam. Workers there get paid far below U.S. minimum wage. But Company Z doesn’t know, or care. They hire one full-stack web developer to build and maintain the website. He is not cheap, but is worth it.
Let’s further assume that all three produce a product that satisfies some segment of the market, in terms of price/quality trade-offs, and that all three companies operate at a profit.
So, what do you think the impact of forcing Company X to shut down, because it could not afford to pay a “living wage”?
- Would this increase or decrease unemployment in the United States?
- Would this result in more workers, or fewer workers needing welfare?
- Would this result in those already on welfare requiring more or less assistance?
- Would this result in more workers, or fewer workers displaced by overseas competition?
- Would this accelerate or slow down the push toward more workers being displaced by technological improvements?
- Would this increase or decrease competition for baseball bats?
- Would this change in competition increase or decrease the price of baseball bats?
It seems to me to be plain that forcing Company X to shut down will make things worse, not better, for the company’s owners, their employees, and their customers. It is hard to imagine a worse policy.