Episode 510: The Birth of the Minimum Wage : Planet Money It's a story of exploding bakeries, a blue eagle, and a guy who may or may not have been drunk.

Episode 510: The Birth of the Minimum Wage

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DAVID KESTENBAUM, HOST:

Today, we are re-airing a favorite episode of ours. It is the twisted history of how we got the minimum wage. Here it is. You'll hear me and Robert Smith.

(SOUNDBITE OF ARCHIVED BROADCAST)

KESTENBAUM: Hey, Robert, you want to mow my lawn?

ROBERT SMITH, HOST:

(Laughter) Mow you lawn? How much you paying?

KESTENBAUM: I'd say it'd take about an hour - seven bucks?

SMITH: I would consider it, except for one thing - David Kestenbaum, you have just broken federal law. According to federal law, minimum wage is $7.25. I'm going to report you.

KESTENBAUM: I'm just trying to get my lawn mowed.

SMITH: Yeah, but I looked it up. Like, there are exceptions for baby sitters, some farm workers - mowing doesn't count - certain seasonal amusement park workers, but, no, you are breaking the law.

KESTENBAUM: OK, we all know this, right? The government has decided that it has a compelling interest in keeping wages up, so it can tell two people who want to agree on a lower wage - you can't do that, it's illegal.

We sort of take this for granted in the United States. When the minimum wage is debated, the debate is usually over how much the minimum wage should be. But today, we're just going to back up and lay out how we got a minimum wage in the first place because a hundred years ago, the debate over the minimum wage was much more profound. It wasn't over how much it should be; it was, should we have a minimum wage at all? Should a government by the people, of the people, for the people have the right to tell said people how much I can pay you to mow my lawn?

(SOUNDBITE OF THE TITLE SEQUENCE SONG, "PAYDAY")

SMITH: Hello, and welcome to PLANET MONEY. I'm Robert Smith.

KESTENBAUM: And I'm David Kestenbaum. Today, a history of the minimum wage, and I have to say it is not what I thought it was. I thought it was just going to be about the moral argument over the years about what's fair. It is much stranger than that.

SMITH: It is a very weird, twisting tale of, like, legal briefs, politicians, more legal briefs.

KESTENBAUM: (Laughter) I'll do it. I'll do it. It is a story of exploding bakeries, a blue eagle and a guy who may or may not have been drunk. That better?

SMITH: Oh, that's great.

(SOUNDBITE OF SONG, "PAYDAY")

THE TITLE SEQUENCE: (Singing) So give me a break, I just got paid. I've only got enough money for fun for three days before the bills arrive to take it away. No chance to save the way I behave. So come out tonight...

KESTENBAUM: A good place to start is a little over a hundred years ago in the state of New York. Back then, the state government was not worried about wages. There was this bigger problem - some workplaces were really dangerous. I speak, of course, of the most deadly of deadly professions - baking bread.

ERIC RAUCHWAY: Bakeries are, in fact, extremely dangerous places to work.

SMITH: This is Eric Rauchway, historian at UC Davis.

RAUCHWAY: Because flour's such a fine particulate, if it gets, you know, to hang in the air, it can actually catch fire and the whole room can go up in sort of a sheet of flame and things like that. So they need to have adequate ventilation.

KESTENBAUM: I was going to make a joke about exploding bread, but it's not a joke.

RAUCHWAY: It's not a joke. It's the real deal. Bakers work long hours and early hours. And bakeries are generally a local business 'cause you want your bread fresh, and so there's one in every neighborhood.

KESTENBAUM: So New York, faced with the prospect of all these bakeries in every neighborhood bursting into flames, passes a law. It is called the Bake Shop Act, and it's a early test of this idea that the government sometimes has an obligation to get between an employer and an employee.

SMITH: Now, the Bake Shop Act does not set a minimum wage, but it tries to improve working conditions in other ways. It requires that bakeries be kept clean, limits the number of hours that people in bakeries can work every day - no more than 10 hours a day, 60 hours a week.

KESTENBAUM: And this little law ends up before the U.S. Supreme Court, which in 1905 says no dice on the grounds that people can enter into whatever kind of contracts they want.

RAUCHWAY: This is an interference with the right of individuals to enter into a contract. That is part of our basic freedom, and the government has no right to abridge that.

SMITH: They say a man is a man, and a man knows what he knows, and a man can make a contract with another man.

KESTENBAUM: (Laughter) The court does waver a bit on this over the years, at one point saying it's OK for the government to step in and protect women by limiting work hours, but there's basically no chance in [expletive] that the Supreme Court is going to allow a minimum wage at this point.

SMITH: No, it is going to take something really big to change that.

RAUCHWAY: So Roosevelt's presidency is a real important case in talking about minimum wage and labor standards more generally.

SMITH: I feel like all the time in PLANET MONEY, we tell these historical stories, and then we say - and then we go, and then the Great Depression.

RAUCHWAY: Well, it's a big deal, you know? (Laughter).

SMITH: Ladies and gentlemen, the Great Depression.

KESTENBAUM: When FDR takes office, it is the worse of the Great Depression. So he's trying to get the economy back on track any way he can. He's trying all these ideas that no one had ever really tried before.

SMITH: And all of a sudden, inviting the government into our lives doesn't seem like such a bad deal anymore.

KESTENBAUM: One of FDR's plans that ends up trying to raise wages - an early minimum wage if you will - is called The President's Reemployment Agreement.

SMITH: And the logic - when you hear about this plan - it does sound a little crazy. Its main thrust is not to raise wages; it's to get more people working.

KESTENBAUM: Here, Jason Taylor is an economist at Central Michigan University, and he edits a journal on economic history. He's going to try and lay it out for you. Listen carefully. Here it is.

JASON TAYLOR: The idea was that you would cut workweeks from an average of, say, 45 to 50 hours a week down to 30 to 35 hours a week. And now by cutting that workweek, you could have three people employed where previously only two were employed. You wouldn't have to increase total hours, you would just be sharing those hours.

KESTENBAUM: That doesn't sound like it's really going to help the situation, right? You've taken half of one person's job away and given it to somebody else.

TAYLOR: Well, that was the sticky part is that now if you're one of these people who has to share your work, you're also having to share your wage. You know, you're not going to be happy that your wage is going to fall by 30 percent. Your take-home pay is going to fall by 30 percent. So to alleviate that concern, Roosevelt said, well, OK. We'll increase the hourly wage rate, so even though you're working 30 hours a week now or 35 hours a week now, your hourly wage is going to go up dramatically so that your take-home pay is going to be basically the same.

KESTENBAUM: Let me just repeat this here. It basically says, hey, autoworker, you can stay home one day of the week. Don't worry, we're going to raise your hourly rate so you don't lose any money, and because you're now only working four days a week, your unemployed buddy is going to get hired also for higher pay.

SMITH: Now, even at the time, to some people, this looked like an impossible magic trick. There were people who said, look, this is crazy. It violates the laws of economics.

KESTENBAUM: But, you know, look at it from FDR's perspective, right? There is massive unemployment. There's also deflation, prices are dropping and wages are dropping, so he's trying to stop the slide. He's trying to just prop up the entire economy any way he can. He's trying to stabilize it.

SMITH: And, you know, when we describe it, it seems a little weird, but listen to it come out of FDR's mouth, and you do kind of nod your head and go, oh, that sounds good.

(SOUNDBITE OF SPEECH)

PRESIDENT FRANKLIN D. ROOSEVELT: The proposition is simply this - if all employers will act together to shorten hours and raise wages, we can put people back to work. No employer will suffer because the relative level of competitive cost will advance by the same amount for all of them.

SMITH: Now remember, the Supreme Court has a long history at this point of striking down exactly this sort of interference in the workplace. So Roosevelt moves fast, and he comes up with this very clever way to sort of strongly encourage businesses to participate voluntarily. It's called the Blue Eagle.

KESTENBAUM: Go along with my plan, and you can hang this government picture of a blue eagle...

SMITH: An actual picture of a blue eagle.

KESTENBAUM: ...In your store showing your patriotism.

TAYLOR: Well, it was an eagle, of course, the American symbol. He had some little lightning bolts down in one of his talons in the bottom to represent industry. And, you know, he looks very powerful spreading his wings.

KESTENBAUM: Not the kind of eagle you want to cross.

TAYLOR: Yeah. Not the kind of eagle that you necessarily want to cross, you know? And it said below it, we do our part, and the idea was that if you're complying with President Roosevelt's plan, you know, you're doing your part and you have this right to display this legal emblem.

KESTENBAUM: And if you were not displaying a blue eagle, you were...

TAYLOR: You were not doing your part...

KESTENBAUM: (Laughter).

TAYLOR: ...And Roosevelt said that you should be boycotted, that we should not shop at people that don't have this blue eagle emblem.

KESTENBAUM: So it was voluntary, but also not so voluntary. There was tremendous pressure to sign up. This is part of the National Industrial Recovery Act passed in 1933, and a lot of businesses do assign on.

(SOUNDBITE OF ARCHIVED RECORDING)

UNIDENTIFIED MAN #1: The J.C. Penney Company employing 21,000 people has, through its president, wired the administration pledging prompt 100 percent cooperation in the National Industrial Recovery program.

(SOUNDBITE OF ARCHIVED RECORDING)

UNIDENTIFIED MAN #2: Warren Bros., the largest road builders in the country, emphatically endorse the president's National Recovery Act.

(SOUNDBITE OF ARCHIVED RECORDING)

UNIDENTIFIED MAN #3: The Gillette Razor Company stands squarely behind the president in his efforts to increase the purchasing power of the nation. We have adopted his voluntary code, and we urge all other employers to do likewise.

KESTENBAUM: Behold the power of the Blue Eagle.

SMITH: All bow before the Blue Eagle.

KESTENBAUM: There's more than that going on. There's more than patriotism here. Businesses were also going to be allowed to get together and create cartels and set prices, so they wouldn't have to compete so much.

SMITH: I'm sure the titans of industry love that.

KESTENBAUM: They did like that part. Robert, I have one more newsreel for you. I also stumbled across this tape of FDR's main recovery guy. He does not sound robotic like those other people. He sounds - well, here, listen.

(SOUNDBITE OF ARCHIVED RECORDING)

UNIDENTIFIED MAN #1: General Hugh S. Johnson, recovery administrator.

GENERAL HUGH S .JOHNSON: The president's reemployment drive in the National Recovery Act gives this country the greatest chance that any country ever had to pull itself out of a tight place.

KESTENBAUM: Robert, does he sound drunk to you...

SMITH: Yeah.

KESTENBAUM: ...The head of the recovery program?

SMITH: He's so totally hammered.

KESTENBAUM: I sent this video to Eric Rauchway, the historian, and he said, yeah. In fact, General Johnson had a reputation as a big drinker, so he may well have been hammered at the time.

SMITH: Well, yeah, it's understandable that you might want to be hammered if you had a job like his. I mean, he's part of the team running this giant, crazy economic experiment. Roosevelt's trying to cut working hours to get more people working, then there's deflation. He's letting businesses form cartels to set prices, and he's trying to raise wages at the same time, in part, so that people have more money to spend and hopefully can fix all the other problems.

KESTENBAUM: Roosevelt has this one other trick for raising wages. Remember, at this point, the government has also become a huge employer - the likes of which the country has basically never seen. To try to get the economy going again, FDR has set up the CWA, the Civilian Works Administration, and the WPA, the Works Progress Administration. The government is building bridges and roads and dams and power plants and sewer systems and schools and parks and playgrounds and airports. So FDR uses this to raise wages simply by paying government employees more. They're a big player in the labor marketplace, so they just pay people more.

SMITH: Yeah, it's competition essentially at work. You know, if you're looking around for a job and the government's paying that much, you're going to take that much. Other employers have to respond. So it does set a sort of minimum wage by example. And it becomes very clear that it's working when FDR gets a letter from a fellow Democrat. And it's not a letter saying, hey, great job, buddy. It is an angry letter. Again, here's historian Eric Rauchway.

RAUCHWAY: Roosevelt gets a letter from the governor of Georgia, a fellow called Eugene Talmadge, where he says, look, I'm getting letters from my constituents saying that the CWA is making it impossible for me to get my crops out of the field. And the letter from Talmadge's constituent reads, I wouldn't plow nobody's mule from sunrise to sunset for 50 cents a day when I can get $1.30 for pretending to work in a ditch.

(LAUGHTER)

KESTENBAUM: For the federal government?

RAUCHWAY: Right. Well, yeah, that's implied.

KESTENBAUM: And how well does all this work? Jason Taylor, the economist, has analyzed part of the Blue Eagle program that tried to increase employment by limiting hours and raising wages at the same time. He says there is good news and bad news.

TAYLOR: Well, the good news about the President's Reemployment Agreement I think is, number one, it created a lot of optimism, and there were, you know, parades and the Blue Eagle emblem. And that optimism, I think, did get people to go out and spend, and it did boost the economy. I also think the good news was the idea that the work-sharing, cutting back on hours to try to spread work around, I think that worked as well. But the fact that you had to pay higher wage rates as well for those workers, that was the bad news because the increasing wages caused farmers to cut back on total hours worked. So while you had more people working, they were working less total hours. And the economy actually, after the President's Reemployment Agreement went into place, the economy, which had been growing very smartly in the spring of '33, actually took a nosedive in the fall of '33, and I think a big part of it was this increase in wage rates.

SMITH: Well, good or bad, the attempt to set minimum wages did not last for long. FDR's powerful-looking blue eagle is no match for nine guys in black robes. I'm referring, of course, to the Supreme Court. And in a unanimous decision, the Supreme Court kills the National Industrial Recovery Act it was a part of as unconstitutional.

KESTENBAUM: Now, the Supreme Court is not going away it, but it turns out neither is FDR. Again, Eric Rauchway.

RAUCHWAY: So 1936, Roosevelt is re-elected by the biggest landslide in modern history.

KESTENBAUM: It's unbelievable, though, I look at the numbers, and it's - I'm so used to very close elections now (laughter). It was 523 to 8 in the Electoral College.

SMITH: That's what we call a mandate.

RAUCHWAY: Right. It's the biggest landslide since Monroe ran unopposed, right? It's huge.

KESTENBAUM: FDR is at the height of his power. He believes in a minimum wage; he believes it is the right thing to do. His labor secretary has a draft of the legislation locked in the lower left-hand drawer of her desk. But there's still the Supreme Court, which has stood in his way so many times.

SMITH: Yeah, but FDR has won this landslide re-election, and he decides to basically take over the Supreme Court. This is that famous moment when he tries to pass a bill that will let him appoint extra justices to the court so it'll vote his way. Well, that doesn't work. But one of the justices, Owen Roberts, basically switches sides.

KESTENBAUM: In 1937, the court upholds the right of Washington state to have a minimum wage. And the next year, FDR gets a federal minimum wage bill passed. It's part of something called the Fair Labor Standards Act. The minimum wage part is very stripped down, won't apply to farm workers to make southern Democrats happy. Eric Rauchway calls it a minimum minimum wage bill. The Fair Labor Standards Act does make its way to the Supreme Court, but it's a different court now, one that is not going to mess with it.

RAUCHWAY: And the other thing that's important is that Roosevelt finally gets to appoint some justices of his own when the elderly justices on the court retire. The Senate sponsor of the Fair Labor Standards Act was Hugo Black. Roosevelt will appoint Hugo Black to the court, and he'll be on the court when the Fair Labor Standards Act comes to the bench to be decided.

SMITH: But I was expecting that this was some sort of intellectual victory to change the way the nation thought of contracts and the power of the federal government, but you seem to be implying that it's basically political bullying that got it through.

RAUCHWAY: I would go so far, Robert, to say that's the only thing that ever gets anything through. None of these victories rapidly represents a watershed in how we think about these things. They represent a momentary victory for the particular political faction that backs them.

KESTENBAUM: And that is the story of how the minimum wage was born. We're still fighting over it today.

(SOUNDBITE OF SONG, "PAYDAY")

THE TITLE SEQUENCE: (Singing) It's near the end of the month, so we all know what that means.

KESTENBAUM: If you want to hear more about the minimum wage, we've got it for you, including the story of two economists trying to figure out its actual effects by looking at fast food restaurants, also the tale of a mall that straddles two cities. One end of the mall has one minimum wage, the other has a different minimum wage. Those stories and more are in our archives. Yes, our archives are back, 300 episodes for you to binge on. We will link to those two on our blog, npr.org/money.

SMITH: As always, we love to hear what you think of the show. You can email us, planetmoney@npr.org. All right, David, start saying social media things.

KESTENBAUM: We're also on Facebook...

SMITH: Go, go.

KESTENBAUM: ...And Spotify and Twitter and the Internet itself.

SMITH: We got a Tumblr.

KESTENBAUM: I'm David Kestenbaum.

SMITH: And I'm Robert Smith, thanks for listening.

(SOUNDBITE OF SONG, "PAYDAY")

THE TITLE SEQUENCE: (Singing) So give me a break, I just got paid. I've only got enough money for fun for three days before the bills arrive to take it away. No chance to save the way I behave. So come out tonight, it will be OK. I'm going to hug you so tight, put your worries away 'cause your bills can't take my love for you.

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