What Did Labor Unions Contribute?

By David Henderson. 

"Dawn Addis, the Democratic member of the California legislative assembly for the 30th district, sent me an email in recognition of Labor Day. In it, she wrote:

This Labor Day holiday, let’s remember it is because of hard-fought wins that we have a five-day work week, a minimum wage and even weekends.

I think she’s only one third right. It is true that labor unions pushed for those three policies. The only one, though, for which unions can take credit is the minimum wage. More on that anon.

What was the main factor behind the five-day work week and weekends free from work? Rising standards of living. Leisure is a normal good and so as real income rises, we demand more of it. The effect of rising income, to the extent it’s due to rising wages and salaries (which it largely is), is actually ambiguous. On the one hand, as noted, there’s an income effect: we want more leisure. On the other hand, the price of leisure, which is the foregone after-tax wage, rises and so we want less leisure. It’s pretty clear, though, that the income effect has dominated. So with or without labor union pressure, we almost certainly would still have the five-day work week. The difference is that without the law, there would be more flexibility so that the (I assume) relatively small percent of workers who wanted to work for six days without time and a half for overtime would be able to work for employers who wanted them to. So the effect of unions, to the extent they were responsible for the legislated 40-hour work week, was to foreclose options. They were responsible for the legislated 40-hour work week but not for the de facto 40-hour work week.

On the minimum wage, she’s right. But she shouldn’t be bragging. The minimum wage at the federal level came about in 1938 in part because labor unions in the industrial north, especially the New England states, noticed that employers were moving to the southeast to take advantage of lower wage rates, often paid to black people. They wanted to reduce the south’s competitive advantage so that employers would be less likely to move.

Back then, and even into the 1950s, politicians could be more blunt about their motives. So in discussion of the minimum wage at a committee hearing in Washington in 1957, one U.S. Senator from a New England state stated the following:

Of course, having on the market a rather large source of cheap labor depresses wages outside of that group, too—the wages of the white worker who has to compete. And when an employer can substitute a colored worker at a lower wage—and there are, as you pointed out, these hundreds of thousands looking for decent work—it affects the whole wage structure of an area, doesn’t it?[1]

[1] From U.S. Senate, Labor and Public Welfare Committee, Proposals to Extend Coverage of Minimum Wage Protection, Hearings before the Subcommittee on Labor, 85th Congress, 1st session, March 20, 1957, p 856.

That senator was John F. Kennedy. It has been well known for decades that one of the effects of the minimum wage has been to price lower-skilled workers out of jobs. Back then, that category had a disproportionately high number of black people and still has a disproportionately high number of black youth."