A brief history of the minimum wage

Written by Sam Johnson

The U.S. Federal minimum wage currently stands at $7.25 per hour, a far cry from its original rate of 25 cents per hour when the federal labor standard was enacted more than 70 years ago. Despite the increased rate of pay, some analysts feel the wage doesn’t go far enough to ensure a living wage for workers, while others argue that the minimum wage actually contributes to poverty by creating more unemployment.
The intent of the federal minimum wage is simple. The wage, which is the lowest amount employers may legally compensate their employees for their hourly, daily or weekly work is intended to redress the unfair bargaining power that employers who employ the least-skilled members of society are perceived to have. At the time the law was enacted, it was believed that the rate of compensation these employers offered their workers was unfair, and led to the proliferation of poverty and other social ills. By providing a minimum wage, lawmakers felt that they were protecting the "little people" from exploitation by the rich.

Providing basic needs

The U.S. Federal minimum wage was adopted in 1938, at the height of the Great Depression. President Franklin D. Roosevelt had campaigned on the issue during his 1936 re-election campaign, saying the move was necessary to keep unscrupulous sweatshop owners from exploiting the poor, particularly women and children. The original act set the 25 cent per hour wage, set the regular workweek at 44 hours (extra time was to be compensated with overtime pay, typically 1.5 times the base hourly rate) and banned child labor. The act was intended to provide a living wage for workers, ensuring that they would at least have the opportunity to provide basic needs for themselves and their families. Up until that point, employers had been able to pay their workers as little as the market would tolerate.

Minimum wages had existed prior to the 1938 federal act. The idea was first set forward in Australia and New Zealand in the late 1890s as a response to strikes and political pressure by labor movements. Stateside, Massachusetts adopted a minimum wage law in 1912 to help women and children. The U.S. Supreme Court had previously struck down a District of Columbia minimum wage law in 1923, reasoning that the law impinged on workers’ rights to set their own price for their labor.

Roosevelt’s law in 1938 was widely hailed, but opposition to minimum wage laws by some economists surfaced shortly afterward. The prevailing argument against minimum wage laws was that it increases unemployment, because employers reduce staff to compensate for their increase in costs resulting from the higher wages they are required to pay. Opponents say unemployment increases largely among workers who are less productive because of inexperience or a disability.
Over the years, the federal minimum wage has been increased several times to help keep up with inflation. Relative to cost of living, the minimum wage had its highest purchasing power in 1968, when it stood at $1.60 per hour. The minimum wage was frozen at $3.35 per hour from 1981 to 1990, and held steady at $5.15 per hour from 1997 to 2007.

In recent years, the minimum wage has jumped dramatically, increasing from $5.15 to $7.25 between 2007 and 2009. These increases are intended to make up for the last decade in which the minimum wage was frozen. Also, federal lawmakers have given state and local governments the right to set minimum wages higher than the federal standard. For example, in San Francisco the minimum wage is $10.36.

The future of the minimum wage

In order to stave off long intervals between increases in the federal minimum wage, legislation has been proposed that would link the minimum wage to the consumer price index, which would help keep the minimum wage current with inflation. Some states have done this, but there appears to be little traction for this move nationwide currently, as the recession has many lawmakers concerned about putting increased burdens on business. Other proposals include including health care in minimum wage. Current legislation to extend health care in the U.S. may make this proposal a reality, as lawmakers consider a solution to the current healthcare problems plaguing the nation.

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