Wages were falling at the time. I believe the idea was that if you put a floor under wages they wouldn't fall any farther, which would put more money in peoples' pockets to spend, which would spur economic activity.
Yeah, the obvious side affect was that it'd discourage hiring.
Whether they didn't see that, or they saw it and didn't care, I don't know. I imagine it was a pretty popular move, politically speaking, at a time when people everywhere were seeing their paychecks shrink. If politicians back then were similar to politicians today, I doubt they thought things through any farther than that.