Academic Literature

Minimum Wages US – From 1912 to 1968

Minimum wages have been among the most controversial government interventions in labor markets for more than a century. We focus on the political economy of the rise of the American minimum wage from its beginnings as state laws for women and children in the 1910s through the years when the federal minimum wage reached its peak value in real terms in the late 1960s and the coverage of the workforce became nearly complete in the early 1970s. Figure 1 documents the trend rise in the real value of the federal minimum between 1938 and 1968 as well as its subsequent decline to levels that had been reached in the early 1950s.

Early laws were limited to women and children and were ruled unconstitutional by the Supreme Court between 1923 and 1937. The first federal law in 1938 initially exempted large portions of the workforce and set rates that became effectively obsolete during World War II. Later amendments raised minimum rates, but coverage did not expand until 1961. The states led the way in rates and coverage in the 1940s and 50s and again since the 1980s. The most contentious questions of today—the impact of minimum wages on earnings and employment—were already being addressed by economists in the 1910s. By about 1960, these discussions had surprisingly modern concerns about causality but did not have modern econometric tools or data.

In 1981, Ronald Reagan became the first president to actively oppose minimum wage increases. During his time in office, no minimum wage increases were enacted, but a sub-minimum wage was introduced. A broad swath of expert opinion agreed with him. In January 1987, the New York Times published an editorial titled “The Right Minimum Wage: $0.00,” which argued for the Earned Income Tax Credit and other mechanisms to be used in its place.

It seems likely that a substantial part of the shift against the minimum wage was a result of the shifting consensus in economic research that negative employ- ment effects of a minimum wage were a real concern. By the mid-1970s, minimum wage opponents were entering the negative findings from academic studies by Adie (1973), Mincer (1976), Gramlich, Flanagan, and Wachter (1976), Welch (1974), Ragan (1977), and Cotterill and Wadycki (1976) into the Congressional Record. The newer studies had access to more data (in particular, a longer time series since the implementation of minimum wages) and increasingly sophisticated econometric methodology.9 A survey by Brown, Gilroy, and Kohen (1982) reported a widely cited consensus that “time series studies typically find that a 10 percent increase in the minimum wage reduces teenage employment by one to three percent,” while cross-sectional studies produced smaller and less precise estimates of 0 to 0.75 percentage points. A 1992 survey of economists found that 57 percent agreed and 21 percent disagreed that “a minimum wage increases unemployment among young and unskilled workers” (reported in Whaples 1996). The survey also found (p. 729) that 87 percent of labor economists agreed that minimum wages increased unemployment for teens and the unskilled. Their median estimate of the impact of a 10-percent rise in the minimum was 2 percent, similar to the earlier consensus.

In the 1990s, the minimum wage debate was reignited when Card and Krueger (1994, 1995, 2000) published a series of studies using firm-level panel data tech- niques and found weak to zero employment effects of higher minimum wages. Neumark and Wascher (2000, 2008) challenged their findings with alternative methods and data sources. Waves of research (discussed in the other papers in this symposium) have followed. More recent polls of economists show much less certainty about negative employment effects of a minimum wage. One 2015 poll asked leading academic economists whether increasing the minimum wage to $15 (from the current level of $7.25) by 2020 would substantially reduce employment of low-skilled workers (IGM Forum 2020): 26 percent agreed or strongly agreed, 24 percent disagreed, 38 percent were uncertain, and the remainder did not answer.

Meanwhile, higher minimum wages continue to have popular support. A 2013 Gallup poll indicated that about three-quarters of Americans supported a minimum wage increase from the prevailing rate of $7.25 per hour. In a 2019 NPR/PBS News- Hour/Marist Poll, 56 percent responded that they believed a national minimum wage of $15 per hour would be a good idea (Polling Report 2020). The states have responded. In 1989, 15 states had minimums above the national level. The number fell back to four states after the national minimum wage increases in 1990 and 1991 but then had risen to 32 in 2007 just before the last national amendments (Neumark 2019). At present, the Congressional Budget Office (2019) reported that 60 percent of US workers live in a state where the minimum exceeds the federal minimum of $7.25 per hour. By 2025, about 30 percent of workers will live in states with a minimum wage of $15 or higher. The United States has returned to an era of substantial minimum wage differences across states, and the future course of the federal minimum wage may be determined by the influence of the state and local minimums on labor market outcomes in these areas.

Chosen excerpts by Job Market Monitor. Read the whole story @  The Rise of American Minimum Wages, 1912–1968 – American Economic Association

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