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The Federal Minimum Wage: Looking Back Over Time

Written by Nickel - 45 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 - 45 Comments
Filed under: Economy, Working

About the author: is the founder and editor-in-chief of this site. He's a thirty-something family man who has been writing about personal finance since 2005, and guess what? He's on Twitter!

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45 Responses to “The Federal Minimum Wage: Looking Back Over Time”

  1. 1
    Jennson Says:

    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.

  2. 2
    "Mo" Money Says:

    I am of the school that government should not be setting wages, but businesses should do this and let the market adjust.

  3. 3
    Benjamin Says:

    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.

  4. 4
    kenC Says:

    ..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.

  5. 5
    Zombie Money Says:

    Nice data :) The min wage debate is always very interesting.

  6. 6
    mz Says:

    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.

  7. 7
    H Lee D Says:

    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.”

  8. 8
    Mark Nelson Says:

    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.

  9. 9
    StephCA Says:

    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

  10. 10
    MaxE Says:

    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.

  11. 11
    StephCA Says:

    That’s true – this is referring to the FEDERAL minimum wage. Sorry if that wasn’t clear.

  12. 12
    H Lee D Says:

    It also doesn’t mention how many of them are single parents, regardless of which age group they’re in.

  13. 13
    StephCA Says:

    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 :)

  14. 14
    Andy Says:

    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.

  15. 15
    LargeTalons Says:

    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.

  16. 16
    Justin Says:

    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?

  17. 17
    Trav Says:

    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.

  18. 18
    James@capitalcouplesfinance.com Says:

    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.

  19. 19
    Jason Says:

    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.

  20. 20
    David B Says:

    @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.

  21. 21
    David B Says:

    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?

  22. 22
    justin Says:

    @David B, if they got a raise then they wouldn’t be ON minimum wage now, would they?

  23. 23
    David B Says:

    @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.

  24. 24
    justin Says:

    @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?

  25. 25
    David B Says:

    @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.

  26. 26
    mz Says:

    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.

  27. 27
    geo Says:

    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.

  28. 28
    Jesse Says:

    So where’s my raise?

    I personally feel this is an arbitrary “feel good” raise designed to get votes, some people that feel the raise is justified by rising inflation.

    So shouldn’t I get a comparable raise?
    The increase is based on the idea that the the cost of living has increased by at least $1,456.00 this year.

    If my raise is less than .70/hr, hasn’t my pay been effectively been reduced, while others’ has increased without any change in performance?

  29. 29
    jay dee Says:

    all of you are wrong….duh….
    of course there are people on minimum wage…if only they had time to read comments like these…all of you got to take a good look at any city and notice how many people earn minimum wage and never get accounted ofr in these statistics…it should be raised because they cant live off their wages

  30. 30
    mz Says:

    The point is that:

    1. Nobody that makes minimum wage keeps making minimum wage for the rest of their live. They eventually get a raise.

    2. Most of the people that get minimum wage are doing it as supplemental income to the household. They are not the primary breadwinner. Therefore, they do not need an income to support a whole family.

  31. 31
    jay dee Says:

    all of u should go out into the world and actually try living on minimum wage and see if it works out for u…or even if u like it…then take into account all the people that dont even get the minimum wage… there are people and a lot of them that arent given minimum because they got no where else to go!!!!

  32. 32
    corporate slavery Says:

    What exactly is a slave?
    Someone forced into servitude for free who is typically clothed, housed, fed, and receive medical care to continue to live to work for free? Yet they are still a slave because they receive no profit from their hard work.

    The current poverty rate looks to be around $17,500 for a family of 3.

    I think the current slavery rate is well above $22,500 or $10.82 per hour.

    Let’s break this down. My estimated minimal monthly living expenses for the average single person with two kids at the cost of;

    Rent $500

    Car (to get to work and groceries) $250 (to buy and maintain any car cheaply, new or used) and Car Insurance $100 = $350

    Food $400

    Electric and phone $200 and $50 = $250

    This totals $18,000

    To pay your aprox. 1/4 amount of taxes you must make $22,500 to be able to afford to keep your $18,000 living expenses out of that with the annual tax cost of $4,500.

    This amount of minimal living expenses includes;

    NO Medical, prescriptions, dental or vision care
    NO Clothing or household furnishings
    NO Entertainment
    NO TV
    NO Internet
    NO Eating out
    NO Vacations
    NO Christmas presents
    NO Fieldtrips
    NO Sports or costly extracurricular activities for children
    NO Speeding tickets or library fines
    NO Emergency expenses
    NO Profit from their hard work

    So, if anyone is working for less than $10.82 an hour, they are essentially a slave. I hope they could at least get free medical. How many jobs are out there for the blue collar worker that is paying much more than this? Many pay much less.

    It becomes heartbreaking to hear so many well off people complain about their high taxes and how so many lazy people are on welfare when many of those so called lazy people are the workers who work their butts off for those who complain to make them large profits, and the only choice those workers have is to either get paid in living wages or compensated by the welfare system via high taxes.

    $6.55 is still desperately far from a living wage and there are many unskilled and uneducated people who do have to work at this low rate. Please don’t complain that you will have to pay a few cents more on your consumer goods when someone has to work for about 1/4 of what it actually takes to live. Please don’t complain when someone has to “go on the government dole” for survival. Please don’t complain when the poorest of the poor get a raise when you are making twice of the minimal living expenses.

    I do think the poster Large Talons had the best idea of providing education and training for people. However, would there be room in job market for all those who currently make less than $10.82 an hour and would those jobs pay much more than that?

  33. 33
    Mike Says:

    As far as I’m concerned – we’re all slaves. Half of our income involuntarily goes to the government when you include the income tax, sales tax, gas tax, payroll tax, etc.

  34. 34
    Sandi Says:

    For those of you who make above minimum wage–be greatful that your employer cannot just lower your wages because it suites them.
    The short term governator of California just won the right to pay all state workers the federal minimum wage–regardless of education, contracted wages, or position–. That means $ 6.55 an hour for doctors, lawyers, prison psychiatrists, highway patrol, ect…..
    I hope July 1st never comes…..because $500.00 a month for rent would be a godsend here. I have to pay more than half my wages for rent and I have a lower cost rental! The federeal minimum wage will not even pay my monthly rent!
    Businesses and government must be held accountable. How can the legislators ok a raise for themselves, and then cut over 200 thousand breadwinners—–good luck getting reelected this time around!
    Hate the great state’s calous officials!

  35. 35
    Oscar R Says:

    The only reason the minimum wage law was implemented is in the fact that business is not always fare,because if it was people will be getting inflation adjustment all the time with no problem. minimum wage is usually the last thing to go up when prices are going up, very few company’s will increase wages without government or other influence, like threat of quitting which is my favorite way to get my raise,they would let you sit on whatever wage you are willing to stay. Look minimum wage is not there to make a living, life is not fare, if someone wants to increase their education or skills it will pay up, if not they will sit at minimum wage forever.
    My rule of thumb is I should be pay at least 3 times minimum wage to make a good leaving and that is when I will push for a raise and not complaint that I just got a pay decrease, I know not everyone is in the same situation where you go to your boss and force them to give you a raise. And that’s just it greet is not going to do the right thing and feeling sorry for people is not going to be right either.

  36. 36
    BKB Says:

    Those who argue that business and the markets would work it out are ignorant of labor history in the extreme. Perhaps you should read about the mining company towns with company housing, company script, the company store and their concept of fairness. Or, maybe the child labor issues that were only fixed by government intervention. Or the meat packers and the bloody riots of the early 20th century. You forget where the idea of an 8-hour day came from, the idea that American progress meant moving from simple survival to a system that provided at least a decent quality of life for most who worked hard rather than creeping penury for those workers to support the gluttony of a few. I am certain that if we don’t head back to that we’re going to have more than a down economy, we’re going to have social unrest beyond what we’ve ever experienced before in this country.

  37. 37
    jay dee Says:

    BKB has been too much in textbooks and not in the real world…you can say whatever you want but textbook material and real world has a an extreme difference…but hopefully your drama can help others to think before they act.

  38. 38
    BKB Says:

    Too much in the textbooks? What an idiotic statement. I have the practical experience of being self-employed for more than 30 years, have survived through downturns from the early 1980s on. I have lived and worked both in a rural area of dairy farms for years while also working in the city, in an area where many joined the National Guard to supplement incomes or have a shot at going to college since the costs there have risen so precipitously, only to be deployed to Iraq and Afghanistan and have trouble getting their crops in. I saw the stupidity that started with Reagan, the ridiculous concept of “trickle-down” economics (what GHW Bush aptly derided as voodoo economics), have been paying attention at the increase in personal debt while real wages have fallen, the unbelievable increase in the incomes of a tiny minority while most Americans simply work more hours in downsized departments with those left end up doing the work of 2 or 3. The MBAs and stock holders love it, but it’s destroying the true middle and working class of this country and that will come at a serious price.

  39. 39
    Mike Z Says:

    Businesses are not destroying the middle and working class in America. The silly voters who keep thinking something will change by voting for the Republicans and/or Democrats are the people destroying America. They fail to realize that these two parties are both the same when it comes to the large issues. Instead, they focus on smaller issues and pit half the country against itself so they are too busy fighting against eachother to really put much thought into the larger issues like monetary policy.

    “Give me control of a nation’s money and I care not who makes it’s laws” — Mayer Amschel Bauer Rothschild

    The minimum wage is just one more little issue that gets people pitted against eachother instead of thinking about the larger picture.

    Vote for change in 2010. No, I mean really true change. Make a statement and vote 3rd party – Libertarian party for instance.

  40. 40
    Gene Says:

    This comparison was just what I was looking for. Thanks. Another comparison of interest would be min. wage compared to large corporation ceo’s salary over the same time periods. One way to judge a society is how well they look after the people that get sacrificed in the name of progress ( for the well to do).

  41. 41
    Jim Kolcinski Says:

    Extremely helpful

  42. 42
    Darcy Says:

    I’m doing a research paper on why minimum wage should be increased.. I’ve spent the last 15 years of my barly above minimum wage struggeling everyday. Working two jobs to support my family.. I make 1/3 less today than in 1998..and prices keep going up.I recieved a small cent raise last year it equated to less than 2 percent..while inflation grew at a rate of 5 percent.. So this year I made less than last year.I work hard with higher goals and do a better job, however;I am paid less while my company makes a higher margin of profit.How is that fair.?. I still make a wage less lower poverty level. If minimum wage is increased I still won’t recieve a raise.How can we get large rich companies to reduce their profit margins and fat cat salaries for good employee’s at the bottom in poverty?

  43. 43
    MZ Says:

    Darcy:

    I can answer your question.

    Q: I work hard with higher goals and do a better job, however; I am paid less while my company makes a higher margin of profit. How is that fair?

    A: It is fair because your current company pays you more money than what any other company is willing to pay for your services. If they do not, you are not forced at gun point to keep working for them. You can quit and work for some other company. If no other company is willing to pay you more for your services and you think you are undervalued, you can become self-employed and start your own company or work as a free agent/consultant.

    I feel your pain because I have a similar situation where inflation is increasing faster than my wages, although I do make more than minimum wage.

    I realize that the problem is not my employer – they are part of the solution – because without them, I would make much less. The problem is government spending. When Obama spends more than he takes in, the debt gets monetized by the Federal Reserve. The government is paying the bills by printing up more and more dollars which results in higher prices for me and you. Instead of taxing our wages, they are taxing our money. It is still a tax and this should make you burn with anger. Obama recently admitted that higher gas prices are a tax. I was surprised he admitted it because he said there would be no new taxes for people making less than $250k!

    Q: How can we get large rich companies to reduce their profit margins and fat cat salaries for good employee’s at the bottom in poverty?

    A: If companies become less profitable, it hurts their ability to hire people. Keep in mind that a company’s only loyalty is to the owners/shareholders. The owners and shareholders are the ones that take all the risks. This is how capitalism works. It’s not perfect, but its the best system we have. If a company loses money, they cannot decide to not pay the employees…employees get paid no matter what. Of course when the owner takes on this additional risk, he/she takes on an additional reward when things are going well.

    This is another reason for you to start your own company. It has higher risks, but higher rewards. Too bad the government is making it harder and harder to do. In fact, the guys who started Home Depot said they would have never been able to start their company up today because government has so many burdens.

  44. 44
    Russell Pope Says:

    It is of course a fact that the minimum wage contributes to the cost of goods and services. It is also a fact that at least some of us believe that those who produce the goods and provide the services deserve wages and benefits which support at least a level of existence beyond the poverty level. If one investigates the distribution of wealth in this nation you will find that while the level of poverty has increased in this nation the share of our nation’s wealth enjoyed by the few (often referenced to the top 1 or 10% of the wealthiest) continues to rise. Some would referr to those as the “job creators”. Even if one accepts this premise what of those who actually provide the labor and service necessary to produce and market the products which ultimately result. A progressive tax rate helps to address the issue concerning the maldistribution of wealth as does the minimum wage.

  45. 45
    Sully Says:

    The data in this article is incorrect, the highest point that the real minimum wage reached it $8.98, not above $10.

    I know this because I did my own calculations while working on my thesis which is on the minimum wage.

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