A New Institutional Framework for Labor Markets

Whatever the impact of government programs on real wages and employment, the establishment of government relief programs and the new powers given to labor unions—most important were the right to strike and to organize free of employer interference—created a strong bond between organized labor and the New Deal. Union membership had declined sharply from more than 5 million in 1920 to 3.5 million in 1923. It remained steady around this level until 1930, when it began falling again before reaching bottom in 1933. Before the new administration had been in power a year, the more vigorous union leaders sensed that the government would encourage organization and that the attitude of the nation toward unions had change.

Especially successful were the powerful and able leaders of the industrial unions that had evolved within the American Federation of Labor (AFL): John L. Lewis of the United Mine Workers, Sidney Hillman of the Amalgamated Clothing Workers, David Dubinsky of the International Ladies Garment Workers, and Walter Reuther of the United Auto Workers. The auto industry was the bellwether of American industry, and it was a major victory for labor when it was unionized in the late 1930s. With the charismatic Reuther playing a key role, the United Auto Workers won recognition from General Motors and Chrysler in 1937 after a series of strikes. The conflict with Ford, however, was especially protracted and bitter. In 1937 Reuther and some of his colleagues received severe beatings at the hands of Ford’s security force. But the United Auto Workers persevered and won recognition in 1941.

The success of the new industrial unions, however, was accompanied by considerable conflict within the union movement. By the mid-1930s, a conflict within the union movement between the older craft unions and the newer industrial unions had grown to major proportions. The drive to organize the mass production industries (steel, automobiles, rubber, and electrical equipment) was inevitable, but the older unions hampered the effort by insisting that their craft jurisdictions remain inviolate and by raiding the membership of the new industrial unions. In 1935, eight industrial unions formed

Note: The real wage is the nominal wage divided by the gross national product deflator. The result was set equal to 100 in 1929 so that the trend could be observed easily.

Source: Historical Statistics 1975, 169-170, D802; 197, El.

The Committee for Industrial Organization within the AFL. In 1936 these unions were suspended from the federation; three years later, it became a separate entity, the Congress of Industrial Organizations (CIO). Relations between these two great federations were bitter. CIO leaders made no secret of their contempt for the AFL’s lack of militancy, and AFL leaders viewed the CIO’s violent break with conservative unionism with concern. However, complacency and inertia no longer beset the labor movement. Union membership increased rapidly in the 1930s (see Table 24.3). Government’s new pro-labor attitude played an important role. Between 1930 and 1939, union membership increased from 6.8 to 15.8 percent of the labor force. Eventually, the split in the labor movement would end. In 1955, the AFL and the CIO, prodded into unity by hostile public opinion and labor legislation, merged to form the AFL-CIO.

Except for legislation that applied only to the railroad industry, Congress had seldom interfered with labor relations before 1932. The Norris-LaGuardia Act of 1932 was the first step toward removing barriers to free organization. The act greatly restricted the ability of the courts to issue labor injunctions. It made the “yellow-dog contract”108—an employment contract in which a worker agrees not to join a union—nonenforceable in federal courts. In addition, it permitted nonemployee boycotting and picketing. The Norris-LaGuardia Act granted workers the opportunity to organize but did not intercede to ensure that they could secure the benefits of collective bargaining.

The first positive assertion of the right of labor to bargain collectively was in the NIRA, but no means of enforcing the statement of principle were provided. Two years later, when the NIRA was declared unconstitutional, Congress replaced Section 7a with a much more elaborate law, the National Labor Relations Act (usually called the Wagner Act). This act established the principle of collective bargaining as the cornerstone of industrial relations and stated that it was management’s obligation to recognize and deal with a bona fide labor organization in good faith. The act further guaranteed workers the right to form and join a labor organization, to engage in collective bargaining, to select representatives of their own choosing, and to engage in concerted activity. In addition, the Wagner Act outlawed a list of “unfair” managerial practices.

The Wagner Act was more than a mere statement of principles. It established a National Labor Relations Board with powers of enforcement. When the Supreme Court declared the Wagner Act constitutional in 1937, there were no remaining legal barriers to the rapid organization of labor. Before the question of constitutionality was settled, however, many

Employers openly violated the act, producing increasing turbulence in labor relations. Animosity between the suspended CIO unions and the AFL grew, leading to jurisdictional conflicts that the National Labor Relations Board had to spend much time settling. As industrial strife seemed to be increasing rather than decreasing, there were public demands for amendments to the act, and employers complained bitterly of the one-sidedness of the law. From labor’s view, however, the Wagner Act was its Magna Carta.

The Fair Labor Standards Act of 1938, which also replaced and extended provisions of the NIRA, was the beginning of federal regulation of the workplace. Among other things, the law set a minimum wage of $0.25 per hour (scheduled to rise eventually to $0.40), fixed a maximum workweek of 44 hours (scheduled to fall to 40) with extra pay for overtime work, and prohibited the employment of children under 16 years of age. (Average hourly earnings in manufacturing were then about $0.62 per hour.) The Wages and Hours Division of the Department of Labor was created to enforce the act. Agriculture was exempt, and other exemptions reduced the share of nonagricultural workers initially covered by the law to about 44 percent. The goal was to protect workers and to increase employment. The hope was, for example, that requiring extra pay for overtime would encourage firms to hire more workers at the lower rate that applied up to 44 hours. The rules and regulations introduced by the Fair Labor Standards Act shaped labor markets for decades to come (Economic Reasoning Proposition 4, institutions matter).

The congressional fight over the first national minimum wage—there had been some legislation at the state level—was not a simple fight between politicians who supported labor and therefore supported minimum-wage laws and politicians who supported business and therefore opposed minimum-wage laws. Many Southern Democrats who had supported other aspects of the New Deal opposed the Fair Labor Standards Act. They were also influenced by what they perceived to be the interests of their constituents. Southern firms that were less well capitalized and who employed less well-educated workers than their Northern rivals feared that a uniform national minimum wage law would inhibit their ability to compete by paying lower wages (Seltzer 1995, 2004; Sobel 1999; Fleck 2002, 2004). Despite opposition, however, the legislation passed and the South had to adjust. It did so in a variety of ways. In some industries the imposition of the minimum wage produced a substitution of capital for labor, in others, attempts to circumvent or evade the law (Seltzer 1997). See Table 24.4 for the effects of the New Deal on union membership.