Labor

Massachusetts, 1912: How The Minimum Wage Became The Policy Monster It Is Today

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For more than 100 years, minimum wage has been one of the most debated laws when it comes to labor policy.

The federal minimum wage at the moment is $7.25 an hour, but states are free to mandate higher. It has increase numerous times on the state and federal level over the years, but the debate between income inequality and employment has remained practically the same for 100 years. With each increase, employers say they’ll have to cut down on labor, and employees say they’ll be able to afford a better life. Meanwhile, inflation and market adjustments churn onward, pushing the policy toward ever higher wages.

1. Massachusetts Becomes The First

Massachusetts became the first state to enact a minimum wage law in 1912. At the time, state policymakers organized a commission that recommended non-compulsory minimum wages for women and children. Within less than a decade, about a dozen states had passed their own minimum wage legislation.

“The movement really started on the state level, you have Massachusetts and Oregon were the first ones that had a minimum wage,” Employment Policies Institute Research Director Michael Saltsman told The Daily Caller News Foundation. “This grew overtime and led to this federal minimum wage law.”

It wasn’t long before supporters starting advocating for a national wage floor, but early attempts failed both legislatively and judicially. That all changed when federal lawmakers passed the Fair Labor Standards Act of 1938.

2. The Fair Labor Standards Act

The Fair Labor Standards Act (FLSA) of 1938 was the first successful attempt at establishing a nationwide minimum wage. It was signed by President Franklin D. Roosevelt at part of a massive overhaul of federal law known as the New Deal. At the time economists were already releasing studies on the potential impact a federal minimum wage could have.

“They looked at the minimum wage on whether they thought it would have an impact on employment,” Saltsman also noted. “Even back then people were looking into it and having conversations about it.”

Those like George J. Stigler found increasing the minimum wage might cause job loss similar to what some economists have concluded in modern times.The FLSA scope at first was very narrow as it only applied to a select number of skilled industries. While mining and manufacturing were included other occupations like in the service industry were not.

3. An Early Warning Against Automation

Businesses turning toward automation has become a pivotal point in the modern minimum wage debate. Employers have started replacing their workforce with computers and machines to overcome the added cost of labor. Some studies showed similar trends even at the beginning of the industrial revolution. The Department of Labor for instance found in 1942 that automation had occurred in the garment industry.

“There was a 1942 study that looked at the cottonseed industry and found that the minimum wage led to greater adoption of labor machinery and reduced employment levels,” Saltsman said. “You had some other studies in the 1940s that found hosiery plants were using more automatic knitting machines.”

When the cost of labor goes up it increases the chances businesses will hire less and rely more on computers and machines. The service industry is particularly at risk since it relies more on low-skilled work that is easily automated. Fast-food and grocery stories are already starting to replace their cashiers with touchscreen computers.

“You move up through history and see gas stations having people pump their own gas and fast food where you refill your own soda instead of having someone do it for you behind the counter,” Saltsman continued. “Today you see really much more advanced and sophisticated technology.”

4. The Minimum Wage Expands To More Workers

The 1960s saw some of the most significant expansions of federal minimum wage law. Lawmakers amended the FLSA a number of times spreading the minimum wage from high-skilled industries down to low-skilled as well. The service sector for instance was not included up until the 1960s.

“When it was first created it covered things like mining and manufacturing and a lot of industries that you wouldn’t think of today as minimum wage industries,” Saltsman noted. “By the 1960s there were a series of amendments made to the Fair Labor Standards Act that would have expanded it to cover a lot of the retail and service businesses that we’d think of today as minimum wage employers.”

The decade also ushered in changes to how the policy is debated in modern times. The debate once centered on how high-skilled workers should be guaranteed a bare minimum, but now it revolves around how simply being employed in a low-skilled job ought to guarantee a certain quality of life.

5. Minimum Wage Reaches Its All Time High

Money doesn’t have the same value overtime and the minimum wage is a reflection of that. The current minimum wage is the highest its ever been, but when adjusted for inflation, it actually hit its peak in 1968 at $1.60 an hour.

“Adjusted for inflation the highest minimum wage we’ve ever had was in 1968,” Saltsman said. “In 1968 it hit the high point at about $10.90 an hour in 2015 dollars. The low point was in 1948 at about $3.93 an hour.”

Saltsman adds the average minimum wage overtime has been about $7.40 an hour when adjusted for inflation.

6. Consensus Reached During The Carter Administration

While some early economists warned of reduced employment, there was still plenty of debate. Even those who agreed employment was a risk weren’t convinced it would be significant. That all changed in 1977.

“Congress created the Minimum Wage Study Commission, during the Carter administration, that basically analyzed the impact the minimum wage has had on employment,” Saltsman said. “They basically determined that every time you increase the minimum wage by 10 percent, it causes job loss of one to three percent.”

Its report reaffirmed the idea that increasing the minimum wage could lead to employment problems. The research became the standard among the economic community because of its scope and that it was spearheaded by labor-leaning Democrats.

“The minimum wage commission became the consensus view of the minimum wage,” Saltsman added. “A big government report on the impact of the minimum wage and what it would do to employment.”

7. The Consensus Is Rocked

The consensus lasted until 1993. Economists Alan Krueger and David Card looked at the impact the minimum wage had when it was increased in New Jersey from $4.25 to $5.05. They found employment actually went up.

“Then you have this David Card and Alan Krueger study looking at New Jersey that suggests that a higher minimum wage might not reduce employment but actually increase it,” Saltsman noted. “That study ended up getting overturned in the same journal that published it because of bad data.”

The report based its information on survey data collected from state fast-food owners. When later reports looked instead at payroll data, employment actually went down.

The nonpartisan Congressional Budget Office has found both positive and negative results at minimum wage increases. It found any increase in the minimum wage will likely result in at least some job loss. The University of California, Berkeley, found in a recent study that having less people in poverty outweighs the potential job loss.

8. The Fight For $15 Has Its First Victory

Seattle was the first place in the entire country to pass a $15 minimum wage in June 2014. The union-backed Fight for $15 movement has been at the forefront of the push and has made the policy a critical national issue. It has utilized protests and media marketing campaigns in its efforts.

Los Angeles, San Francisco and Long Beach passed their own $15 minimum wage not long after Seattle with other cities following as well. The local increases were designed to phase in over a few years so it’s still being implemented.

At the moment the $15 wage floor has only passed on the city level. New York, New Jersey and California are among a handful of states fighting to be the first to enact a minimum wage of $15 an hour. The increase would be unprecedented if it were to be passed on the federal level even when adjusted for inflation.

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