The Federal Minimum Wage: Looking Back Over Time

Written by nickel - 27 Comments

The federal minimum wage was first enacted under Franklin Roosevelt in 1938. At that time, the minimum acceptable pay rate was set at $0.25/hour, though it’s increased gradually over the years. In fact, just yesterday the federal minimum wage increased by $0.70, from $5.85/hour to $6.55/hour. As it turns out, however, just over half of all states were unaffected by this change since they already have state minimum wages in excess of the federal level.

While this increase in the minimum wage was a welcome change to some, other have argued that it’s not enough, and still others have argued that the government shouldn’t be setting the price of labor in the first place. Given the controversy, I thought that it would be interesting to look at minimum wage levels over the years to see how much things have really changed.

What follows is a graph of the federal minimum wage from 1938-2008, expressed both in terms of actual dollars and inflation-adjusted 2008 dollars*.

As you can see, while the minimum wage has increased just over 26-fold since its inception, actual buying power has fluctuated considerably over time. The real-world value of the minimum wage (expressed in 2008 dollars) peaked at $10.06/hour in 1968, and has been gradually tailing off in the years since then. That being said, it’s still hasn’t reached the levels seen back in the 1930s and 1940s.

As an aside, you can really see the insidious effects of inflation right around 1980, when actual wages were increasing every year, yet buying power was falling at the same time.

Another interesting way to look at these data is in the context of projected annual incomes vs. the federal poverty level. What follows is a graph of the annual income of an individual working full-time (2080 hours/year), again expressed in 2008 dollars. The dashed line reflects the 2008 poverty level for a family of three (e.g., a single parent with two kids).

As you can see, the full-time income of a minimum wage worker eclipsed the current poverty level back in the early 1960s and hung on until the late 1970s, at which time it went into a prolonged slide.

So… There you have it. A brief history of the minimum wage. As always, please feel free to share you thoughts on these data, or the minimum wage in general, in the comments section.

*Inflation adjustments were done using this CPI calculator.

Published on July 25th, 2008 - 27 Comments
Filed under: Economy, Working
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Comments (scroll down to add your own):

I’m more curious to know its effects on productivity and GDP than buying power. People always argue that the minimum wage artificially inflates unit labor costs and in turn creates unneeded inflation on goods and services. I’m not always so sure if that’s the case.
Comment by Jennson — Jul 25th 2008 @ 7:47 am
I am of the school that government should not be setting wages, but businesses should do this and let the market adjust.
Comment by "Mo" Money — Jul 25th 2008 @ 12:14 pm
This may be naive, selfish, or whatever, but I haved always maintained the position that if you are making minimum wage, you are not trying hard enough.
Comment by Benjamin — Jul 25th 2008 @ 9:35 pm
..so with this factual history– can we judge whether this “Minimum Wage” policy theory worked or not ?

Of course, there would have to be an honest statement of that theory somewhere by the politicians who imposed it nationwide. But there is not.

Only a very small percentage of Americans work for minimum-wage… mostly part time students, housewives, etc.
And it’s only a temporary condition for most. Hard core unskilled people have difficulty getting a job at even the mandated wage floor.

Minimum wage laws do not create or retain any jobs for anybody — they destroy job opportunities for the most needy, unskilled & semi-skilled people… who are prevented from entering the work force at low wages — and working their way up the job/wage ladder.
Comment by kenC — Jul 25th 2008 @ 9:53 pm
Nice data The min wage debate is always very interesting.
Comment by Zombie Money — Jul 26th 2008 @ 12:30 am
A lot of liberals argue that we need to raise minimum wage because a person making minimum wage is below the poverty line and everybody should be making at least a “livable wage.” However, the thing they forget to point out is that almost nobody earns the minimum wage their entire life. The minimum wage is just a starting point. Once they get some work experience, they can start to move up the ladder to some higher wage which is above the poverty line. Additionally, most liberals don’t realize that very few family bread winners make the minimum wage. The overwhelming vast majority of minimum wage employees are either teenagers or other non-bread winner family members that are simply working to supplement the main breadwinner’s income.
Comment by Mike Zoril — Jul 26th 2008 @ 11:54 am
I would be interested to see citations for “only a very small percentage of Americans work for minimum wage” and “almost nobody earns the minimum wage their entire life” and “very few family bread winners make minimum wage.”
Comment by H Lee D — Jul 26th 2008 @ 12:49 pm
I think there are more people earning minimum wage then we think. My school of thought is we should be teaching people how to be entrepreneurs so they don’t have to rely on anyone but themselves.
Comment by Mark Nelson — Jul 26th 2008 @ 4:11 pm
H Lee D,
Here is the Bureau of Labor statistics website:

http://www.bls.gov/cps/minwage2005.htm

2005 is the latest data they have. Highlights from their analysis of the data.

“# Minimum wage workers tend to be young. About half of workers earning $5.15 or less were under age 25, and about one-fourth of workers earning at or below the minimum wage were age 16-19. Among employed teenagers, about 9 percent earned $5.15 or less. About 2 percent of workers age 25 and over earned the minimum wage or less. Among those age 65 and over, the proportion was about 3 percent. (See table 1 and table 7.)

# About 3 percent of women paid hourly rates reported wages at or below the prevailing Federal minimum, compared with under 2 percent of men. (See table 1.)”

You can also see tables arranged by a variety of demographic data if you follow the link.

Hope this helps
Comment by StephCA — Jul 26th 2008 @ 7:01 pm
StephCA - the BLS quotes you pulled are misleading: they don’t account for the fact that (as nickel pointed out) many states have minimum wages above the federally mandated level. So when it says “about 3 percent of women” and “under 2 percent of men” earned at or below the federal minimum, this is not including those who are still paid minimum wage in their own states. Also, even if it’s true that half of those making minimum wage are under-25, that still leaves the other half who are over 25. You can’t live anywhere in this country on minimum wage. That’s a fact.
Comment by MaxE — Jul 26th 2008 @ 10:25 pm
That’s true - this is referring to the FEDERAL minimum wage. Sorry if that wasn’t clear.
Comment by StephCA — Jul 27th 2008 @ 12:28 am
It also doesn’t mention how many of them are single parents, regardless of which age group they’re in.
Comment by H Lee D — Jul 27th 2008 @ 12:35 am
Well the info I could find on single parents come from EPI:

http://www.epi.org/content.cfm.....nwagefacts

“An estimated 1,229,000 single parents with children under 18 will benefit from a minimum wage increase to $7.25 by 2009. Single parents will benefit disproportionately from an increase — single parents are 10% of workers affected by an increase, but they make up only 7% of the overall workforce. Approximately 6.4 million children under 18 will benefit as their parents’ wages are increased.”

And from a House debate back in 1996 also citing EPI:
http://www.house.gov/jec/cost-.....gainst.htm

“Only 2.8 percent of workers earning less than $5.15 are single parents. [4] Only 1.2 percent of all minimum wage workers were adult heads of households with incomes less than $10,000. [5] Fifty-seven percent of minimum wage workers are single individuals, many of them living with their parents.”

I can’t find any other hard data on this - just lots of opinion
Comment by StephCA — Jul 27th 2008 @ 12:54 am
Mike - Many minimum wage jobs do not have a “ladder” which one can move up. I have had several minimum wage jobs over many years; about half of these jobs did not have any advancement path.

Very few family breadwinners make minimum wage because people earning minimum wage rarely get married! Specifically, men who earn minimum wage are considered “unmarriageable” are rejected by women. While many of these people might want to get married, it’s unlikely to happen.

When I worked in a convenience store earning my state minimum wage, we had two dozen employees and only ONE was married even though approx half the employees were middle-aged.
Comment by Andy — Jul 27th 2008 @ 3:04 am
what does it matter how many people are under or over 25, or what percentage of people stay at the minimum wage. The real issue here is wether or not the government has the right to intrude on an agreement between two consenting parties. The minimum wage is vote getting issue, but doesn’t do anything to stem the level of poverty in America. That data is interesting, another interesting comparison would be to contrast the inflation adjusted minimum wage against the percentage of families living under the poverty level. If I had to guess, I wouldn’t think there would be any corolation either way. Businesses don’t magically have more money to pay employees just because the minimum wage goes up, those extra funds have to come from somewhere, either less benifits or inflated prices, what portion of society would you say those two things hurt the most? A higher wage just means your doing the job of two people instead of actually employing another person. When will we stop messing around with market manipulation, which doesn’t work (just ask the former soviet union) and start concentrating on solutions to the actual problems like fixing the public education system and providing job training for those in need of it.
Comment by LargeTalons — Jul 27th 2008 @ 11:26 pm
What I haven’t seen in these claims that not many people are only earning minimum wage is how many are only earning up to a dollar more?

If you’re earning 5c more you’re not going to be counted in the stats.

Also, do these min. wage stats account for wait staff who earn min. wage/2?
Comment by Justin — Jul 28th 2008 @ 10:59 am
The EPI quote: “An estimated 1,229,000 single parents with children under 18 will benefit from a minimum wage increase to $7.25 by 2009.”

… is wrong. Some of those 1,229,000 will be laid off due to the increase. That doesn’t qualify as a benefit.

To Nickel: I like the charts. Is there a way you can produce one using annual poverty levels (instead of the constant 2008 level)? Poverty level is also a function of technology, social policy, etc.
Comment by Trav — Jul 28th 2008 @ 1:20 pm
Wow! This has been a great debate. I have to agree with Trav, whenever the government tries to help, there is usually a hidden cost that isn’t mentioned.
Comment by James@capitalcouplesfinance.com — Jul 29th 2008 @ 4:35 pm
The fact of the matter is that in the long term, it’s impossible to pay anyone more than their productivity. If the job you’re doing is only worth $5 to my business, and the government says I have to pay everyone atleast $6, then there’s a problem.

Short term, I’ll just have to eat it. I’ll either go out of business, or pay other, more skilled workers alittle less to make up the difference. Of course, I have to be careful here, because if I don’t pay them what they’re worth, they can go to a competitor.

Long term, I’ll probably buy some machinery that will allow me to get rid of some of the minimum wage workers. I liked having them around, but I can’t lose money keeping them.

Of course the other option is maybe I can raise my prices, so that I have more money to give them their “raise”. Ironic, because now that the prices of everything has gone up, the liberals are looking to pass another minimum wage increase.
Comment by Jason — Jul 30th 2008 @ 1:33 pm
@Justin,

Excellent point. The statistics quoted above do include wait staff who usually make MUCH more than the minimum wage when accounting for tips. With that in mind, the number of people who are actually earning the minimum wage is far less.
Comment by David B — Jul 30th 2008 @ 5:49 pm
In fact, according to Table 1 (http://www.bls.gov/cps/minwage2005tbls.htm), of the 1.88 million workers who make at or below the minimum wage, 75% make LESS than the minimum wage. Meaning their wages are supplemented with tips. I know bartenders who make over 50,000 that are included in this statistic!

479,000 people, less than 6 tenths of one percent of hourly workers, made the minimum wage. That should illustrate pretty clearly that most people are able to make above the minimum by their own merits, without sitting around and waiting for the government to legislate them a raise. I would also be willing to bet that most of those 479,000 probably got a raise within less than a year.

Wages will rise on their own as employers compete for employees, the government mandated minimum is unnecessary and dangerous.

For those that think everyone deserves to make more than 5.85, how much is enough? By your logic, shouldn’t we just mandate that the minimum should be $20, so that everyone can live a little more comfortably? I think most would concede that employers wouldn’t be able to afford that, and it would severely damage the economy. How do you know where the line is? 10? 50?
Comment by David B — Jul 30th 2008 @ 6:01 pm
@David B, if they got a raise then they wouldn’t be ON minimum wage now, would they?
Comment by justin — Jul 30th 2008 @ 6:03 pm
@justin,

I’m not sure what you’re trying to say. My point is that the minimum wage is a solution to a problem that doesn’t exist. The idea that there is any significant group of people perpetually raising a family on the minimum wage is a fantasy. It’s the bottom rung on the ladder, and most people don’t stay there for long. It provides an opportunity for those with low skills (mostly teenagers) to work and develop skills, eventually leading to a raise or a job that pays better.
Comment by David B — Jul 30th 2008 @ 6:12 pm
@David B, the people who are barely above minimum wage get a raise when it is raised, but they aren’t counted as min. wage in statistics.
These people tend to get nickel raises every so often, how long does it take nickel raises to add up to 70c?
Comment by justin — Jul 30th 2008 @ 6:25 pm
@Justin, If you have some statistics to back up your assertion that a significant portion of minimum wage earners are only getting nickel raises, that would be helpful.

If not statistics, perhaps some logic on why that would even be a plausible occurrence that happens regularly? If you were going to reward an employee for their hard by giving them a raise, what would be accomplished by giving them 5 cents? It would just be a slap in the face. Why even give them a raise? I look forward to hearing your response.
Comment by David B — Jul 30th 2008 @ 6:42 pm
In response to what everybody said below my first comment and above this one, the important thing to take away from this discussion is that a politician can’t simply create wealth out of thin air by increasing the minimum wage. Somebody has to pay for that. That somebody is everybody.

The small business owners and their families that employ many teenage workers (or other people that earn minimum wage or slightly above it) might no longer be able to stay in business, so everybody looses their job. The average American pays for it in higher prices for goods and services. The minimum wage worker pays for it by loosing his job because his employer can’t afford to give everybody an instant pay raise.

Raising the minimum wage simply amounts to a trick politicans pull to get votes.
Comment by Mike Zoril — Jul 30th 2008 @ 8:36 pm
These wages are not going into a black hole. The minimum wage earner is most certainly spending every dollar nearly immediately–in many cases on the very services that minimum wage workers are providing.
Comment by geo — Aug 3rd 2008 @ 7:59 pm