History of the Minimum Wage
1938 -- The minimum wage was first enacted into law as part of the Fair Labor Standards Act (FLSA) of 1938. The original minimum wage applied to workers engaged in interstate commerce and the production of goods for interstate commerce. In 1938, this applied to roughly 11.0 million workers out of a total of 54.9 million workers. The minimum wage was set at $0.25 per hour. ·
1961 -- Amendments to the minimum wage law extend coverage primarily to employees in large retail and service trades as well as local transit, construction, and gasoline service station employees. ·
1966 -- Amendments to the minimum wage law extend coverage to state and local government employees of hospitals, nursing homes, and schools and to employees of laundries, dry cleaners, large hotels and motels, restaurants, and farms. Subsequent amendments extended coverage to the remaining federal, state and local government employee not protected in 1966, to certain workers in retail and service trades previously exempted, and to certain domestic workers in private household employment.
The 20-percent increase in the federal minimum wage scheduled to occur over the next year may not be the best way to boost the incomes of low-skilled workers and their families. This article explores the purpose and impact of the minimum wage in an effort to discover whether it is a good idea.
Proponents of the minimum wage argue that it ensures a "living wage" for workers who might otherwise be underpaid, while opponents claim it costs hundreds of thousands of workers their jobs and reduces new hires of unskilled workers. About 10 percent of workers will be directly affected by the two increases in the minimum wage Congress authorized in 1996. The first increase, which took effect on October 1, boosted the minimum wage from $4.25 to $4.75. The second increase, scheduled for September 1, 1997, will raise the wage floor to $5.15.
A Brief History
A public outcry over wages and working conditions in turn-of-the-century sweatshops led to the first minimum wages in the United States. Several states, beginning with Massachusetts in 1912, regulated minimum wages, maximum hours and working conditions for women and minors. A national minimum wage was created in 1938 when President Franklin D. Roosevelt signed the Fair Labor Standards Act (FLSA). Initially set at 25 cents per hour, the wage floor applied to industries engaged in interstate commerce and covered about one-fifth of the labor force. The FLSA also required overtime pay and set restrictions on child labor.
The basic goal of the minimum wage is to guarantee workers a "fair wage." Congress determines increases in the federal minimum wage and has usually set it at about one-half the average manufacturing wage. (Table 1 summarizes the history of the federal minimum wage.) Since the minimum wage is set in nominal terms, its real value declines as prices rise until Congress raises the wage floor again, creating the sawtooth pattern evident in Chart 1. ?
As shown in the chart, the minimum wage fell dramatically relative to the average manufacturing wage during the 1980s, prompting one-third of the states to impose state minimum wages above the federal level. Over time, Congress has greatly expanded the coverage of the FLSA, and almost 90 percent of workers now must be paid at least the minimum wage. Most businesses with annual sales of less than $500,000 are exempt from the minimum wage standard.
Concerns that the wage floor would reduce employment for certain groups of workers led to the creation of "subminimum wages." The federal wage floor has usually been lower for students, and in 1989, the subminimum wage was expanded to cover all teenagers. Under the 1996 law, employers will still be able to pay teenagers $4.25 for up to 90 days. Tipped employees may also be paid less than the wage floor since the law currently includes a "tip credit" that allows employers to pay workers...
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· Burkhauser, R., K. Couch and D. Wittenberg (1996), " `Who Gets What ' from Minimum Wage Hikes," Industrial and Labor Relations Review 49 (April): 547-52.
· ------, and T. A. Finegan (1989), "The Minimum Wage and the Poor: The End of a Relationship," Journal of Policy Analysis and Management 8 (Winter): 53-71.
· Card, D., and A. Krueger (1995), Myth and Measurement (Princeton, N.J.: Princeton University Press).
· Deere, D., K. M. Murphy and F. Welch (1995), "Employment and the 1990-1991 Minimum Wage Hike," American Economic Review Papers and Proceedings 85 (May): 232-37.
· Gramlich, E
· Lang, K. (1994), "The Effect of Minimum Wage Laws on the Distribution of Employment: Theory and Evidence," Working Paper, Boston University.
· Neumark, D., and W. Wascher (1995), "The Effects of Minimum Wages on Teenage Employment and Enrollment: Evidence from Matched CPS Surveys," NBER Working Paper No. 5092, April.
· Smith, R., and B. Vavrichek (1992), "The Wage Mobility of Minimum Wage Workers," Industrial and Labor Relations Review 46 (October): 82-88.
Update: January 12, 1997
Minimum Wage, 2000 Style
February 15, 1995
50 Years of Research on the Minimum Wage
· The minimum wage reduces employment.
Currie and Fallick (1993), Gallasch (1975), Gardner (1981), Peterson (1957), Peterson and Stewart (1969)
· The minimum wage reduces employment most among black teenage males.
Al-Salam, Quester, and Welch (1981), Iden (1980), Mincer (1976), Moore (1971), Ragan (1977), Williams (1977a, 1977b)
· The minimum wage helped South African whites at the expense of blacks.
· The minimum wage hurts blacks generally.
Behrman, Sickles and Taubman (1983); Linneman (1982)
· The minimum wage hurts the unskilled.
· The minimum wage hurts low wage workers.
Brozen (1962), Cox and Oaxaca (1986), Gordon (1981)
· The minimum wage hurts low wage workers particularly during cyclical downturns.
Kosters and Welch (1972), Welch (1974)
· The minimum wage increases job turnover.
· The minimum wage reduces average earnings of young workers.
Meyer and Wise (1983b)
· The minimum wage drives workers into uncovered jobs, thus lowering wages in those sectors.
Brozen (1962), Tauchen (1981), Welch (1974)
· The minimum wage reduces employment in low-wage industries, such as retailing.
Cotterman (1981), Douty (1960), Fleisher (1981), Hammermesh (1981), Peterson (1981)
· The minimum wage hurts small businesses generally.
· The minimum wage causes employers to cut back on training.
Hashimoto (1981, 1982), Leighton and Mincer (1981), Ragan (1981)
· The minimum wage has long-term effects on skills and lifetime earnings.
Brozen (1969), Feldstein (1973)
· The minimum wage leads employers to cut back on fringe benefits.
McKenzie (1980), Wessels (1980)
· The minimum wage encourages employers to install labor-saving devices.
Trapani and Moroney (1981).
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