Minimum wage laws Summary

  • Last updated on November 10, 2022

One of the first significant government restrictions placed on American industry, the minimum wage permanently altered the dynamic between employer and employee by guaranteeing a basic level of compensation for most workers. After surviving a number of legal challenges, the minimum wage became a permanent and often controversial fixture of the U.S. economy.

The origin of minimum wage laws in the United States can be traced to the Progressive movement of the late nineteenth and early twentieth centuries. Concern for women and youths working in garment factories and other “sweatshop” environments, where low wages and long hours were common, prompted progressive organizations such as the National Consumers’ League to call for legislation requiring employers to pay workers at a minimum hourly rate. These proposals met with vehement opposition from politicians and industrialists, who argued that the free market alone should set wages and who embraced a contemporary political philosophy supporting a strictly limited role for government in regulating economic activity. Despite this opposition, the movement for minimum wage laws in the United States slowly gained momentum, bolstered by the enactment of the first minimum wage laws in Australia in 1896.Wages;minimum

In 1912, Massachusetts passed the first minimum wage law in the United States. The law applied only to women and children and provided few sanctions for violators. Fourteen other states followed suit during the 1910’s and early 1920’s, and in 1918, the U.S. government established a minimum wage for female workers in the District of Columbia. The U.S. Supreme Court ruled these laws unconstitutional in Atkins v. Children’s Hospital (1923)>Atkins v. Children’s Hospital (1923), holding that they violated the due process clause of the Fifth Amendment by interfering with the implied contract that exists between employer and employee.

Federal Minimum Wage Legislation

Despite continued opposition from business and the courts, public interest in minimum wage laws was revived during the Great Depression. President Franklin D. Roosevelt attempted to establish a national minimum wage of 25 cents per hour in 1933 as part of his New Deal program to combat the effects of the Depression, but the Supreme Court, citing Atkins as precedent, again declared minimum wage laws unconstitutional in 1935. Several states nevertheless passed minimum wage laws during the early 1930’s, with Oklahoma passing the first such statute to cover men as well as women and children. The Supreme Court reversed its opposition to minimum wage laws in 1937, ruling that states can use their police powers to restrict contracts in the interest of public health and safety. Emboldened by the ruling, Roosevelt revived the national minimum wage as part of the Fair Labor Standards Act of 1938Fair Labor Standards Act, which the U.S. Congress passed in June, 1938.

The national minimum wage of 25 cents per hour established in 1938 was increased periodically by amendments to the Fair Labor Standards Act. The minimum wage reached $1.00 per hour in 1956, and by 1963 it had reached $1.25 per hour. Although these increases were implemented in response to economic growth and inflation, the purchasing power of low-income workers increased as a result. This purchasing power reached its peak in 1968, when the minimum wage was increased to $1.60, an amount equivalent to approximately $9.50 in 2008 dollars.

Slow Growth

The federal minimum wage began to increase more slowly during the 1980’s, prompting critics to decry its failure to keep pace with inflation and changes in the American economy that had increased the number of lower-paying service jobs. Increased to $3.85 in 1981, the minimum wage was not raised again until 1990, when Congress approved a gradual increase to $4.25 by mid-1991. Two additional raises during the 1990’s set the wage at $5.15 by 1997, where it would remain for the next ten years. In 2006, Congress voted to increase the wage incrementally to $7.25 by 2009, returning the purchasing power of minimum-wage earners to its highest level since the early 1980’s.

The slow growth of the federal minimum wage during the late twentieth and early twenty-first centuries prompted many states and localities to pass laws establishing minimum wages that exceeded federal standards. In 2008, the states with the highest minimum wages were Massachusetts and California, at $8.00 per hour, and Washington at $8.07 per hour. The city of San Francisco, California, raised its minimum wage to $9.36 in 2008.

Impact

By mandating a basic level of compensation for low-income workers, the enactment of minimum wage laws eliminated one of the most common means of worker exploitation in U.S. industry during the late nineteenth and early twentieth centuries. Minimum wage laws also influenced the wages of all hourly workers by establishing a benchmark for fair compensation in many jobs. The true impact of minimum wage laws on the American economy has been the source of much debate, however. Some economists and political theorists have argued that these laws decreased job opportunities for low-income workers by discouraging employers from hiring low-income employees, as well as placing undue pressure on small businesses and fueling inflation by placing upward pressure on wages and prices. Recent studies have indicated that while the presence of a minimum wage has not significantly reduced the number of jobs available to low-income workers, its effectiveness in reducing the overall poverty rate has been modest. Others have suggested that the slow growth of the federal minimum wage during the late twentieth century effectively rendered it obsolete by the early twenty-first century.

Further Reading
  • Burkhauser, Richard V., and Joseph J. Sabia. “The Effectiveness of Minimum Wage Increases in Reducing Poverty: Past, Present, and Future.” Contemporary Economic Policy 25, no. 2 (April, 2007): 262-282. This examination of the effectiveness of minimum wage laws in combating poverty concludes that their effects, while significant, have been limited, primarily as a result of historically low federal minimum wage levels.
  • Neumark, David, and William Wascher. Minimum Wages and Employment. New York: Now, 2007. Analysis of the effects of minimum wage laws upon employment in various economic sectors. Includes comparative analyses of the effects of minimum wage laws in other countries.
  • Pollin, Robert, et al. A Measure of Fairness: The Economics of Living Wages and Minimum Wages in the United States. Ithaca, N.Y.: ILR Press, 2008. Comparative analysis of the impact of federal minimum wage laws and state laws establishing minimum wages higher than the federal minimum wage.
  • Waltman, Gerold. The Politics of the Minimum Wage. Champaign: University of Illinois Press, 2000. This comprehensive history of the minimum wage in the United States focuses upon the legal battles and political maneuvering behind changes in federal and state minimum wage laws.
  • Whittaker, William G. The Fair Labor Standards Act. New York: Novinka Books, 2003. This overview of the Fair Labor Standards Act includes detailed discussion of federal minimum wage law and the ongoing debate over its implementation.

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