Does the Constitution Mandate Minimum Wage Hikes?
Did you know that the Constitution may prohibit states from setting uniform minimum-wage policies? Me neither.
But a federal appeals court ruled last week in favor of a group of plaintiffs challenging Alabama’s Minimum Wage Act. According to the court, the plaintiffs have “a plausible claim” that the law “had the purpose and effect of discriminating against Birmingham’s black citizens, in violation of the Equal Protection Clause of the Fourteenth Amendment.”
The case dates to 2016, when the Birmingham City Council enacted an ordinance that raised the city’s hourly minimum wage to $10.10 from the federal minimum of $7.25—a nearly 40% increase. A day after the law took effect, Republican Gov. Robert Bentley signed the Minimum Wage Act, which nullified the increase and mandated a single minimum wage throughout the state. Black fast-food workers sued, joined by black lawmakers and the NAACP, but a district court dismissed the case. The plaintiffs appealed, and last week’s decision by the 11th U.S. Court of Appeals returns the case to a lower court to consider the discrimination claims.
As ever, backers of the wage hike pitch it as an antipoverty measure. Birmingham’s City Council president said opponents are “keeping their boots on the necks of people in desperate need of financial relief” and that people “cannot pull themselves up by the bootstraps if they can’t afford to buy boots.”
Yet evidence that minimum-wage increases reduce overall poverty is slim, as the nation’s leading economists have recognized for decades. “Minimum wage laws are about as clear a case as one can find of a measure the effects of which are precisely the opposite of those intended,” wrote Milton Friedman in his 1962 book, “Capitalism and Freedom.” “In fact, insofar as minimum wage laws have any effect at all, their effect is clearly to increase poverty.”
Increasing the cost of hiring someone reduces the number of people who would otherwise be hired. You don’t help the poor by pricing them out of the labor market. Nor are you improving the situation of people in minimum-wage jobs if they see their hours reduced because the cost of employing them has increased. Some parts of the U.S. are learning these lessons the hard way.
In 2015, Seattle became the first major city to pass an ordinance that would increase its minimum wage incrementally to $15 per hour by 2021. The following year, the University of Washington published an analysis of the Seattle law’s effects on low-income workers and concluded that the pay increases had been “offset by modest reductions in employment and hours, thereby limiting the extent to which higher wages directly translated into higher average earnings.”
The appellate court ruling last week noted that Birmingham is 72% black, while opposition to the city ordinance in the state Legislature was led by “a white representative from Alabama’s least diverse area, with the help of fifty-two other white sponsors.” But should we assume that opponents of mandated wage hikes are motivated by racial bias? And is the skin color of a bill’s author relevant to determining its constitutionality? Last year, Catherine Pugh, the black mayor of majority-black Baltimore, vetoed a minimum-wage increase on the grounds that low-income workers would suffer most as jobs and tax revenue fled the city. State lawmakers in Alabama have made similar arguments.
Historically, it has been the proponents of wage mandates, not free-market advocates, who exhibit animus toward blacks. At the urging of labor unions, which then excluded black members, Congress passed several laws in the 1930s aimed at preventing blacks from competing by working for less than the union wage. These included the Davis-Bacon Act, the Fair Labor Standards Act and the Wagner Act.
Lawmakers at the time openly acknowledged their racial agenda. During hearings on Davis-Bacon, which regulates wages on federal public works projects, Rep. William Upshaw of Georgia spoke of “the real problem” of a “superabundance or large aggregation of Negro labor.” Rep. John Cochran of Missouri, another supporter of the bill, spoke of “numerous complaints in recent months” about “low-paid colored mechanics” pushing whites out of jobs. Rep. Miles Allgood of Alabama told the story of a contractor from his state who traveled to New York with “cheap colored labor that he transports, and he puts them in cabins, and it is labor of that sort that is in competition with white labor throughout the country.”
Modern-day proponents of minimum-wage laws may not be driven by the same biases, but the results are not all that different. Increasing the price of labor results in a labor surplus—in other words, unemployment. Blacks are often hardest hit.
The appellate court is correct to note that there is a racial component to the minimum-wage debate in the U.S. But in distorting economics and rewriting history, the Alabama plaintiffs are not doing the black underclass any favors.
Appeared in the August 1, 2018, print edition.