In the midst of the Great Depression, President Franklin D. Roosevelt signed two significant bills into law that were intended to boost employment. These were the National Labor Relations Act (NLRA) of 1935 and the Fair Labor Standards Act (FLSA) of 1938. However these laws, among others, ultimately caused higher unemployment and delayed economic recovery.
The National Labor Relations Act
Under the NLRA, the National Labor Relations Board (NLRB) was created. The NLRB guaranteed unions the right to collectively bargain with business leaders and provided government arbitration of labor-management disputes. In addition, unions were exempted from many federal regulations imposed on businesses, such as adhering to court injunctions and personal/property injury liability.
This act led to a great increase in union membership, making organized labor the powerful political and economic force that it is today. This new power enabled many unions to demand higher wages and better benefits for their workers. However, contrary to the assessment of most historians, these demands actually hurt more workers than they helped.
The Roosevelt administration acted on the premise that granting unions more power to demand higher wages would increase workers’ purchasing power, and that this increase would prompt workers to spend more, thus stimulating the economy. But only higher production can stimulate the economy, and production is determined by consumer demand.
When unions push employers to raise wages and benefits at a time when consumer demand does not justify an increase in production, then the natural result is that employers must stop hiring workers, thus causing more unemployment.
The Fair Labor Standards Act
While the NLRA strengthened unions, the FLSA was an effort to benefit mostly non-union workers. Under this act, a national minimum wage of 40 cents per hour and a national maximum workweek of 44 hours were established. The act also required that certain industries pay workers “time-and-a-half” for every hour worked over the maximum for the week. In addition, child labor was prohibited.
The minimum wage provision actually hurts workers because it could compel employers to pay them more than the value of production, and in a free market the value of production is once again determined by consumer demand. When pay exceeds production value, employers must inevitably hire fewer workers, thus raising unemployment.
The provision banning child labor was added not just to protect children but also to appease the labor unions. The unions had lobbied for an end to child labor for decades, not because they were concerned for child welfare, but because they worried that child labor competed with inefficient, politically-oriented organized labor. This explains why there was not a significant uproar about child labor on farms; children working on farms faced conditions just as harsh or harsher as children in industry, but because farm children did not compete with organized labor, few lobbied the government to protect them.
Unintended Consequences of the NLRA and FSLA
As often happens, government intervention in the free market causes unintended consequences. In this case, the anti-business theme of these laws caused people to withhold investment in business, which further stunted economic growth.
In addition, these laws placed additional costs on employers, and for many business owners struggling through the Great Depression, the only way to offset these extra costs was to hire fewer workers. These laws helped make the depression worse, and they were partly why by 1938, five years after Roosevelt took office and pledged economic recovery, one in every five Americans was still jobless.
Sources
DiLorenzo, Thomas J.: How Capitalism Saved America (New York, NY: Three Rivers Press, 2004)
Wallechinsky, David; Wallace, Irving: The People’s Almanac (Garden City, NY: Doubleday & Company, Inc., 1975)
Woods Jr., Thomas E.: The Politically Incorrect Guide to American History (Washington, DC: Regnery Publishing, Inc., 2004)
Walter Coffey - Walter Coffey is a freelance writer who resides in Houston, Texas. Walter has written several works of historical fiction and non-fiction, ...
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