The Minimum Wage as Industrial Policy: A Forgotten Role

Abstract

In the welter of arguments being debated in connection with amending minimum wage legislation, the protagonists have lost sight of the original intent of such state intervention. That purpose was to help -- exclusively -- those workers whose wage formation process was subject to “market failure” by forcing their employers to internalize the minimum social costs of maintaining a worker, which they had succeeded in shifting onto the worker or society.

Although the minimum wage was obviously also designed to create micro-welfare effects, its primary function lay in removing labor costs from competition, increasing productivity macro-economically by driving “parasitic” firms out of business and concentrating production in the most competent firms, and steering capital-labor relations.

The chief objective of this Article is to recover the missing theoretical and political underpinnings of the current controversy by examining earlier political and economic debates in which arguments of principle tended not to be subordinated to those of expediency.

Keywords: minimum wage, industrial policy, Fair Labor Standards Act, living wage, poverty, original legislative intent, efficiency, exploitation