Thinking about Minimum Wage with Systems I and II

Thinking systems in the brain have been divided into two basic types. System I thinking is instinctive and fast. It is basically how you feel — your first impression. System I is always jumping to conclusions and making an educated guess.

System II, on the other hand, is careful, deliberate, logical reasoning. When System II is engaged, the pupils dilate, digestion slows, and you lose awareness of what is going on around you.

When politicians make decisions that affect the health of the nation, they should be using System II. That is, they should do research, debate intelligently, think critically, and problem-solve.

It is very easy to adopt a position that sounds good to System I, but System II thinking reveals that the situation is a lot more complicated.

In my younger years, I was a victim of this. I was a strong advocate of raising the minimum wage. I didn't understand how anyone could be against it. It seemed like the compassionate viewpoint. At least that's what my System I thought. I decided to use my System II and do some research.

I discovered that the minimum wage got started in the USA with the Davis-Bacon Act of 1931. It was enacted to prevent workers from the South taking jobs from the North. Here is the story:

When the government wanted to build a new post office, hospital, or administration building, they took bids on the project and accepted the lowest bid from well-established construction firms. One firm won a lot of these contracts in the northern states, and they did a great job.

When this firm was awarded a bid for, say, a large hospital in Washington DC, the contractor would import skilled labor from the South.

Electricians, masons, carpenters, etc. The construction firm would house the workers for the several months that the project took.

They were paid less than the workers that lived in the area and thus had a higher cost of living. However, the wages were higher than the prevailing wages in the South because of the lower cost of living in the South.

The question is, "Is it fair to import labor from a place where the cost of living is low into a place where the cost of living is high?" In other words, are the local workers entitled to the local construction jobs at the prevailing rate, or are the taxpayers entitled to the lower construction costs? This is a question for serious, System II debate.

Let's assume that you built a successful lawn care service over twenty years and had twenty-five people working for you. If a truckload of non-locals was bussed in and offered your clients the same lawn care service for 75% of what you were charging, would that be OK with you?

Not surprisingly, the workers living in the North at the time were upset about losing "their" construction jobs to workers from the South. They demanded action.

In early 1931 the United States Congress addressed the fact that cheaper labor could be imported from the South into a state like New York, which reduced job opportunities for local workers, who had a higher cost of living.

The general sentiment was that something should be done. The democratic Senator from Alabama, Miles Allgood, said this:

"Reference has been made to a contractor from Alabama who went to New York with bootleg labor. This is a fact. That contractor has cheap colored labor that he transports, and he puts them in cabins, and it is labor of this sort that is in competition with white labor throughout the country."

This statement, which can be found in the congressional record, clearly indicates that he believes that the problem involves race, not just economics. It is an interesting thought experiment to consider what would have happened if the resident workers were the same race as the itinerant workers.

As a result of Davis-Bacon Act of 1931, the Southern workers no longer had opportunities to work on government-sponsored construction jobs in areas with a higher prevailing wage because it was no longer cost effective for the contractor to transport and house the itinerant workers during the project.

The degree to which the Davis-Bacon Act hurt Southern workers was detailed in a 1994 article in the UCLA Black Law Journal:

The Davis-Bacon Act of 1931, though a relatively obscure and unknown law, has had a tremendous negative impact on Black construction workers for decades. One of the goals of its supporters was to prevent Blacks from working on federal construction projects.

This is not the only instance that a minimum wage was imposed to "protect" the jobs of resident workers from itinerant workers that would work less than the prevailing wage.

In 1925, a minimum-wage law was passed in the Canadian province of British Columbia, with the intent and effect of pricing Japanese immigrants out of jobs in the lumbering industry.

Arthur Holcombe, a Professor of government at Harvard University at the time stated:

"The minimum wage law will protect the white Australian's standard of living from the invidious competition of the colored races, particularly of the Chinese,"

It is interesting to note that Holcombe assisted Chiang Kai-shek in the drafting of a constitution for the Republic of China in 1949.

In South Africa, white labor unions urged that a minimum-wage law be applied to all races, to keep black workers from taking jobs away from white unionized workers by working for less than the union pay scale.

Today, many politicians want to raise the minimum wage and the reason they cite is, "to help the workers that earn lower wages."

In the past, however, the minimum wage was implemented to prevent Blacks, Chinese, and Japanese from taking White jobs.

If a politician is going to advocate for raising the minimum wage, they should argue with System II thinking — explaining how the economic conditions present today are different from the economic conditions that were present when a minimum wage was implemented to protect higher-paying White jobs.

It would also be useful to cite a thorough analysis of the results of raising minimum wage in the past. Yes, some workers made more money, but how many businesses closed as a result and how many people were let go because their employer couldn't afford to pay the mandated minimum wage?

The issue is very complex and deserves to be addressed by serious people using careful, logical, and thorough System II thinking, rather than the emotional, reactive, and inadequate System I.