America’s Century-Long Fight for a Fair Minimum Wage
The Industrial Revolution created a sea change in the way people worked. For the first time in human history, the workers of the 1800s were selling their time rather than the products of their labor. Many workers found themselves working in sweatshop conditions for a pittance, with few regulations to protect their safety or dignity. When they agitated for a living wage, workers were often assaulted or fired, as their employers replaced them with other “unskilled labor.”
Though industrial nations passed laws about working conditions in the nineteenth century, for most of that century workers were on their own when it came to what they were paid. Unions fought — often literally — for better pay, but governments let companies and workers establish their own arrangements. If workers weren’t willing or able to force their employers to give them a living wage, that was just too bad.
Kiwis lead, Americans follow
The first minimum wage was established in New Zealand after a nationwide strike of dockworkers and miners in 1890. This labor action, though it ended in defeat for the striking workers, disrupted the country’s economy for three months. Corporations blacklisted strikers and slashed wages in retaliation. Four years later, the progressive Prime Minister Richard Seddon decided not to risk further chaos and passed the Industrial Conciliation and Arbitration Act, which created an arbitration system for labor disputes. The arbitrators had the power to set wages, and they soon created the first minimum wage system in the world.
The concept of a minimum wage spread to Australia soon afterward, and when American progressives heard about it at an anti-sweatshop conference in Switzerland, they returned to the US determined to make a minimum wage the law here. Just as in New Zealand, the first minimum wage in the United States was the result of a strike. In 1912, textile workers in Lawrence, Massachusetts had their pay cut and walked off the job. The strike dragged on for weeks, and police attacked workers — many of whom were female — and their children. The strike itself had mixed results, but the state of Massachusetts, afraid of more labor unrest, passed a minimum wage law later that year.
By the early 1920s, the National Consumers League had successfully lobbied several states to pass a minimum wage. Activists presented it as a necessary step toward making sure that workers could earn a living wage. The movement seemed to be gaining momentum, until it hit an obstacle — the Supreme Court. The conservative court struck down a number of labor regulations in the 1920s, all on the premise that they interfered with the “liberty” of workers and employers to freely negotiate. They did the same with Washington, DC’s minimum wage in Adkins v. Children’s Hospital in 1923. It didn’t seem to matter that there were, as dissenting justices pointed out, many restrictions against “freedom of contract” that the court had found constitutional, such as laws limiting the maximum number of hours that employers could require or the maximum amount of interest a lender could charge. The minimum wage was dead in America.
1933–1970: A living wage
The loss of minimum wage laws hurt some workers, but the impact of the change was masked by the booming economy of the 1920s. When the Great Depression hit, the issue took on a new urgency. Constrained by the Supreme Court, Franklin Roosevelt tried to find ways around the Adkins decision. Roosevelt had no patience for opponents of the minimum wage; in 1933, he said, “It seems to me to be equally plain that no business which depends for existence on paying less than living wages to its workers has any right to continue in this country.”
The National Industrial Recovery Act was FDR’s attempt to make a minimum wage legal. It encouraged employers to set a minimum wage of $12 a week in exchange for membership in the program. Companies that adhered to the law could display a sign that said, “We Do Our Part.” This, too was nixed by the Supreme Court in 1935’s Schechter Poultry Corp. v. United States. After the decision, Justice Louis Brandeis told representatives of the Roosevelt administration, “This is the end of this business of centralization, and I want you to go back and tell the president that we’re not going to let this government centralize everything.”
Roosevelt did not take kindly to the Supreme Court’s dismantling of the New Deal. After his landslide victory in 1936, he planned to expand the Supreme Court so that he could address the Depression without constantly running into judicial interference. Though court-packing faltered due to the administration’s mishandling of it and popular resistance, the retirement of one justice and ideological shifts in some others led the court to approve more New Deal legislation. A 1937 case reversed the Schechter decision and allowed Washington State to institute a state minimum wage. In 1938, Congress passed the Fair Labor Standards Act, setting the first federal minimum wage at a quarter an hour (about $4.60 in today’s dollars); the Supreme Court upheld it in 1941. Roosevelt, in a 1938 fireside chat, handily dismissed any criticism of the new law:
Do not let any calamity-howling executive with an income of $1,000.00 a day, who has been turning his employees over to the Government relief rolls in order to preserve his company’s undistributed reserves, tell you–using his stockholders’ money to pay the postage for his personal opinions–tell you that a wage of $11.00 a week is going to have a disastrous effect on all American industry.
The first minimum wage was, as it would often be, a compromise — FDR had originally asked Congress to set it at 40 cents. After World War II, Congress frequently raised the minimum wage. It went up to 75 cents in 1949 and $1.25 ($10.71 in today’s dollars) in 1963. The federal minimum wage during this era was not quite universal. There were some industries that did not have to pay the federal minimum, and teenagers had a lower minimum wage. Women were not guaranteed the same minimum wage as men until 1963.
Congress kept raising the minimum wage throughout the 1960s, but they never made the logical move of simply pegging it to inflation or worker productivity. Instead, low-wage workers had to hope that keeping the minimum wage in line with the value of a dollar was a priority for Congress. It was, for a while — during the 1960s, the value of the minimum wage outstripped the rate of inflation, peaking in 1968 at $1.60 ($12.22 in 2020 dollars). The high minimum wage didn’t hurt the economy or cause widespread unemployment — the economy of the late 1960s was one of the best in the country’s history.
1970–2020: The floor sinks
In the 1970s, however, Congress let the minimum wage slip below the cost of living, and it’s never caught up. As the backlash to the New Deal and Great Society took hold, Congress raised the federal minimum wage less often, and by less. The rhetoric around the minimum wage changed as well. Individualism reigned in American political and economic thought — the union movement faded, and both parties became hostile to the idea of “big government.”
The rhetoric of Franklin Roosevelt — that companies needed to do their part by paying their employees well, and that workers deserved a living wage — disappeared. Instead of sympathizing with lower-wage workers struggling to make ends meet, American politicians of both parties placed blame on the workers themselves. If they wanted better pay, they should have gotten a better education. The key to helping them was not to pay them better, but to train them for better-paying jobs. George H.W. Bush’s labor secretary, Elizabeth Dole, made this clear in testimony to Congress in 1989:
We need to recognize that the poverty population and the minimum wage earners are different people, by and large. We need to be clear about what we are trying to do. If we want to help people out of poverty, then we need to look at literary and basic skills, which are the root to the better-paying jobs our economy is creating.
By 1996, the minimum wage, raised that year to $4.75, was only worth $8.01 in today’s money. A decade later, it had only risen to $5.85, which was still worth more ($7.53 in today’s dollars) than today’s minimum wage of $7.25, which hasn’t changed since 2009. Though 29 states have raised their minimum wages above the federal $7.25, that means that 21 haven’t. Only 17 states index their minimum wages to inflation, leaving workers in the uncomfortable position of waiting for the political winds to blow their way.
Since the minimum wage sets the floor for all other wages, average hourly pay in the U.S. has stagnated since the Reagan era. This is true even though worker productivity had continued to climb. Between 1979 and 2018, worker productivity increased by almost 70% while average hourly compensation only went up by 11.6%. In short, companies are getting more out of the average worker without paying for it.
Why we need a new minimum
The failure of the federal government to raise the wage floor is not just an unfair redistribution of resources to corporations. It’s especially sad when you compare it to the amount of money people need to survive in many parts of the country. MIT economist Amy Glasmeier has developed the Living Wage Calculator, which estimates the necessary hourly wage necessary to take care of the basic needs of a family in different parts of the country (no restaurant meals, no vacations, no saving for the future — just surviving).
Even in relatively affordable cities like Indianapolis, where the minimum wage is the federal $7.25, a living wage for one adult is $11.48. A single mom with two kids would need to earn $28.70 per hour. In Dallas, another $7.25 city, those numbers are $12.19 and $28.61. In a more expensive city like Seattle, which has a minimum wage of $12.00, the higher minimum wage still isn’t enough: a single person would need $15.26 and the mom with two kids would need $34.51 per hour to make ends meet.
Whenever the topic of the minimum wage comes up, there is a lot of hand-wringing about the burdens a higher minimum wage will place on business owners. But the truth is that a low minimum wage shifts burdens from employers to us, the taxpayers. Workers making minimum wage often can’t make ends meet, and must rely on public assistance. Taxpayers are subsidizing the low wages that companies pay. Studies have found that increasing the minimum wage to the levels we used to have in the 1960s would save taxpayers billions of dollars. A mega-study of economists’ papers found that raising the minimum wage has “no detectable effect” on unemployment.
In many ways, opposition to the minimum wage is paradoxical — the same people who want workers to be self-sufficient and get off of government assistance are endorsing a system that promotes the opposite. Even the tired old rhetoric about keeping government out of the economy doesn’t really work. Our government, along with every other government on earth, intervenes in the economy on behalf on industry in countless ways. The patron saint of free-market economics, Adam Smith, wrote that economies need regulations that protect workers more than they need those that protect companies: “When the regulation, therefore, is in support of the workmen, it is always just and equitable; but it is sometimes otherwise when in favour of the masters”
Smith also supported the idea of a living wage:
Is this improvement in the circumstances of the lower ranks of the people to be regarded as an advantage or as an inconvenience to the society? The answer seems at first sight to be abundantly plain. Servants, laborers and workmen of different kinds, make up the far greater part of every great political society. But what improves the circumstances of the greater part can never be regarded as an inconvenience to the whole. No society can surely be flourishing and happy, of which the far greater part of the members are poor and miserable. It is but equity, besides, that they who feed, clothe, and lodge the whole body of the people, should have such a share of the produce of their own labor as to be themselves tolerably well fed, clothed, and lodged.
The minimum wage was one of the great advances of the twentieth century. For the first time in human history, workers were at guaranteed the ability to keep their families housed, fed, and clothed. For about thirty years, our minimum wage policy was relatively successful in doing just that, but the anti-worker sentiment of the 1980s and 1990s made our policies inadequate. Some business owners may complain that the jump from $7.25 to $15 is too big, but it needs to be so big because we’ve failed our workers for the last 30 years.