Chapter 04
Roosevelt’s New Deal as Slogans

V. Roosevelt’s Intervention in Unions

In fulfillment of his pledge to “protect workers”, President Franklin D. Roosevelt implemented key labor reforms, including the establishment of a minimum wage, the introduction of Social Security, and the passage of the National Labor Relations Act. While these initiatives aimed to enhance worker welfare, they also generated a range of unintended negative effects.

The influence of minimum wage and Social Security legislation endures to this day. Roosevelt endorsed both from the outset of his presidency, declaring the minimum wage an essential component of his broader policy framework.

Ironically, the minimum wage legislation resulted in job losses among the very workers it was intended to protect. The primary advocates of the bill were not low-income laborers, but rather the relatively well-paid textile workers of New England, who sought to leverage federal power to shield themselves from competition. By the 1920s and 1930s, the U.S. textile industry had begun to migrate from New England to the South, where a lower cost of living enabled Southern workers to produce quality goods at reduced wages. As critics observed, “Northern industry attempted to stifle the growth of Southern industry.” Southern Democratic legislators noted that the passage of the Minimum Wage Act would amount to placing a tariff barrier on Southern products.

A significant number of congressional representatives opposed the legislation on constitutional and philosophical grounds, expressing concern that it might exacerbate unemployment during the Great Depression. They argued that it infringed upon the principle of “freedom of contract.” To these critics, the 1918 Minimum Wage Act represented a form of government-imposed price control, effectively restricting the ability of individuals to freely negotiate the terms of employment within private contractual relationships.

The legislation proved most detrimental to unskilled workers — those seeking to enter the workforce and begin climbing the economic ladder.

Roosevelt’s Social Security initiative also introduced a range of issues. Firdtly, between 1937 and 1940, mandatory contributions from both employers and employees increased labor costs, thereby intensifying unemployment and hindering economic recovery during the Great Depression. Secondly, from a fiscal perspective, the program was fundamentally unstable. Unlike life insurance policies, Social Security benefits were only payable to those who survived to age 62, even though the average life expectancy in the United States in 1930 was only 60. Roosevelt himself acknowledged the political motives behind the plan, stating: “I suppose, from an economic standpoint, you’re right. But this tax isn’t really about economics — it’s about politics. With this money in the Treasury, no politician will ever dare to abolish my Social Security program.”　　　

During the New Deal era, labor-management relations underwent a profound transformation. Before the Great Depression, the doctrine of “freedom of contract” was a foundational legal and economic principle. As Supreme Court Justice Mahlon Pitney observed in 1917, “Regardless of the perceived benefits of collective bargaining, it cannot be deemed genuine unless both parties engage voluntarily.” Pitney further emphasized the necessity of preserving individual liberty, stating that workers must be free to join or abstain from union membership, and that employers must retain the right to refuse employment to individuals affiliated with or subordinate to unions.

The National Labor Relations Act (commonly known as the Wagner Act) represented a profound departure from the traditional doctrine of freedom of contract, as it sought to dramatically improve the conditions of American workers. Under the Act, employers were prohibited from obstructing the formation of labor unions or dismissing employees on the basis of union membership. Furthermore, they were compelled to engage in collective bargaining with duly elected union representatives. If 30% of a workforce in a given industry sought to unionize, a vote could be initiated. The union receiving a majority of votes would then serve as the exclusive representative for all employees in that sector. Membership in that union became mandatory, and all negotiations with the employer had to be conducted through that union.

The Wagner Act exhibited a clear bias in favor of labor unions. In the 1930s and 1940s, as unionization efforts gained momentum, strikes became a frequent occurrence. While wages increased in many newly unionized industries, the broader economic implications were more troubling. From the standpoint of the Great Depression and national employment levels, the new labor relations framework introduced significant challenges.

Elevated wage demands imposed considerable burdens on many employers, who responded by cutting workforce size where feasible. Moreover, unions commonly practiced racial discrimination, thereby excluding many African American workers from the benefits of the new legislation.

Higher labor costs also undermined the international competitiveness of American goods, leading to reduced sales and fewer job opportunities. These factors contributed to a prolonged economic downturn, extending the effects of the Great Depression.

Most economists agree that consumption taxes are regressive in nature, as they impose a heavier relative burden on low-income earners than on the wealthy. The consumption taxes introduced during the Roosevelt administration exemplified this pattern.

Over the course of Roosevelt’s presidency, both the range and rates of such taxes expanded significantly. As a result, consumption taxes emerged as a primary source of federal revenue, thereby placing an increasing fiscal burden on the general population—particularly the poor.

Roosevelt’s administration imposed high tax burdens not only on the wealthy but also on corporate and personal income. These elevated tax rates prompted many affluent individuals to scale back investments or engage in tax avoidance strategies, thereby hindering the pace of economic recovery.

A prominent example was the Revenue Act of 1935, a significant measure in the early New Deal. The Act introduced progressive corporate income taxation, imposed a 70% tax on large estates, enacted gift taxes, and raised the top marginal income tax rate to 79% for individual incomes exceeding $5 million.

Roosevelt’s subsequent initiative involved the imposition of a tax on undistributed corporate profits. The policy aimed to compel businesses to distribute earnings as dividends or wages, thereby generating additional taxable income for the federal government. However, many firms chose to retain their profits in order to finance expansion, invest in new equipment, and support research and innovation efforts. The tax thus risked discouraging reinvestment and long-term growth.