The Global Minimum

In a previous column I mentioned the wild idea that a worldwide minimum wage would be the most logical way to truly create a “flat world” economically.

The area of West Georgia and East Alabama provides a dramatic example of the changing world. Forty years ago, this was the second largest textile manufacturing area in the nation, with large mills in Columbus, The Valley and LaGrange. Manchester, of course, once had a large textile mill around which its economy revolved for several decades.

Those mills are virtually all gone now, along with thousands of jobs. Textile jobs were among the early ones shipped to other nations but the trend continues, with white-collar jobs and high-tech jobs also threatened, as well as manufacturing jobs.

North Dakota Sen. Byron Dorgan, in his book, Take This Job and Ship It, blames trade policies with giving other nations, including China, an advantage, as the United States has lowered tariffs on goods it buys more than it has raised tariffs on the goods it sells abroad. A U.S. company can move jobs to a country with lower wage rates and sell the product cheaper back home because its price isn’t raised by a high tariff when it returns. The trade-off is lower prices but fewer jobs in the United States. In the long run, that is a bad trade.

A global minimum wage sounds impractical, if not impossible, because there is such a wide difference in the American minimum of about $6 an hour and the wages paid in some Third World countries, which amount to a few dollars a day. Actually there’s no valid way to compare the wage scale, work conditions or the employment potential.

Most Third World nations are still in the agrarian stage, with many people “living off the land.” In such countries a minimum wage for employment would be meaningless.

But what is possible would be for the U.S. government to impose the minimum wage on all of a company’s employees whether they work in the continental United States or whether they work in other countries.

The government could do that, as well as eliminate any tax breaks to out-of-U.S. operations. Yes, businesses can lower their federal taxes by moving out of the country. Obviously, it should be the other way around.

If the financial benefit of moving an operation out of the States was lessened or eliminated, that trend should be reduced. But Sen. Dorgan relates his efforts to get a bill through the Senate to eliminate the tax advantage for companies moving out of the United States – only to see the measure defeated 59-40.

He points out that when other countries consider raising their minimum wages or labor standards, U.S. companies within their borders threaten to move again, seeking an even lower-wage country.

The first U.S. minimum wage was approved by Congress in June 1938. It required employers to pay 25 cents an hour for 44 hours of work. Agriculture workers, domestic servants and other service workers were not covered, and in some respects are not covered 70 years later. The strongest opposition to the minimum wage came from Southern Democrats, who felt that low wage scales were the South’s main advantage in attracting industry. In 1938, it was estimated that more than 20 percent of Southern industrial workers made less than the minimum wage while only 3 percent of workers in non-Southern states made less.

Thus, the minimum wage was in large measure aimed at the South and aggravated a growing split between President Roosevelt and Southern congressmen. Sen. Ed Smith of South Carolina contended a man in his state could support a family “on 50 cents a day.”

The unemployment rate was more than 20 percent when the first minimum wage was enacted; and the nation was still in economic depression. During the following 30 years, the United States became the most prosperous nation in history.

Many factors played a role, but the Wage and Hour Law was an essential building block; and the states that benefited the most were those that were poorest in 1938 – Georgia, Alabama, South Carolina and other Southern states. Could that be a pattern for the world?

One encouraging sign in the job picture is the establishment of plants by foreign companies such as Hyundai in Montgomery, Ala., and, of course, KIA in West Point.

Can the world truly become economically flatter at a higher level rather than at the lower levels? The United States did.

Categories: Guest Commentary