A Poor Idea During a Recession?

MINIMUM WAGE HIKE

EVER since the Fair Labor Standards Act in 1938 set up a federal minimum wage, there have been few public issues in the U.S. on which there was so much agreement on the rightness of the goals and so much disagreement on how to get there. Last week the debate was fueled anew. In his economic message, President Kennedy urged Congress "to raise the minimum wage immediately to $1.15 an hour and to $1.25 within two years.'' The President also recommended that the Fair Labor act be broadened to include "several million" workers not now covered, basically those in retail trade and services. Many businessmen are against an increase at this time. The unions are, as expected, solidly for a higher minimum. Says A.F.L.-C.I.O. President George Meany: "If an enterprise cannot survive except by paying wages of 75-c- or $1 an hour, I am perfectly willing for it to go out of business--it's not worth saving at that price." As usual, the debate is likely to focus most sharply on what workers are to be included on the minimum-wage elevator, rather than on the elevator's rate of ascent. While hourly wages under the law have been hiked four times from the original minimum of 25-c- in 1938 to $1 in 1956. coverage has never been expanded, in fact has slightly contracted. The minimum level has seldom reached half the average U.S. hourly wage, now $2.32. but fewer than one-half of the 50 million U.S.

workers privately employed are now covered by the law. Among those not covered: retail clerks, farm hands, seamen, and service employees, who earn much of their income in tips. The Administration will probably suggest that coverage be extended to an additional 3,000,000 employees, chiefly in the retail and service trades--fastest-growing sector of the U.S. economy. In so doing, it will run smack into the biggest foes of extending minimum-wage coverage: retail stores, hotels and restaurants, all of whom use much part-time, low-wage help.

By lumping his minimum-wage proposals in with his anti-recessionary measures, Kennedy gave critics a ready argument. They contended, with reason, that a recession is the worst time to tinker with wages: "You've already got unemployment and depressed areas --why make both worse?" Says University of Chicago Economist Yale Brozen: "Every time the minimum wage has been increased, unemployment of the unskilled, those covered by the increase, has increased.'' Brozen cites a study of Florida counties after the 1956 boost. For the twelve months of that year, employment in counties paying low wages dropped 1%, v. a rise of 5% in high-wage counties.

Examining the theory that many low-wage businesses are forced to close because they cannot afford to pay their workers a new minimum wage, the U.S. Labor Department made an exhaustive study of the effects of the 1956 increase, reported that only 62,000 workers in 15 low-wage industries had been laid off in the first impact of the $1 minimum-wage hike. The strongest arguments against a boost were made by the director of economic research of the U.S. Chamber of Commerce, Emerson Schmidt. But a survey he introduced to support his position granted that "in a majority of instances, the $1 minimum wage appeared to have little significant influence on unemployment, either in the short run or the longer run.''

Critics also argue that the minimum-wage rise and additional coverage will boost the general wage level, spur inflation, and, by raising prices in the U.S., make it more difficult for already-high-wage U.S. industry to sell abroad. But the Labor Department study reported that after the 1956 boost, the prices of goods produced by low-wage industries showed a "negligible change" over the period 1956-60 as a whole, while the all-commodity index of prices rose 6.6%. Thus the big price boost came in the industries above the minimum. Reason: low-wage industries are often prodded by a minimum-wage boost to increase productivity, cannot raise prices without pricing themselves out of the market. As for foreign competition, the President noted that "more than four-fifths of the commodities" affected by import or export trends" are already being produced by industries where wages are above his proposed minimum.

Though the Administration bill may run into rough congressional waters (a similar pair of bills died in a House-Senate conference last August), many businessmen regard Kennedy's proposals with aplomb. Says Critic Brozen: "Without Government stimulus and with normal increases in productivity, --he minimum-wage group would be making $1.25 within four years, anyway." Even in the South, traditional target for minimum-wage legislation and now hard hit by slumps in both the textile and pulpwood industries, those who are paying above the minimum would like to see competitors forced to do the same.

As in the past, the minimum-wage argument is largely political and humanitarian, and aimed at long-range goals. Raising the minimum is clearly not a means of fighting a recession.

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