Minimum Wage When discussing wage payment policies and strategies, one of the forefront topics is minimum wage. Minimum wage has historically been a point of contention and much debate among politicians, community leaders, and businessmen. The current presidential primaries have continued this storied argument, and continued the historic trend. The more conservative politicians argue against increasing the minimum wage, often suggesting it be eliminated entirely, while the more progressive politicians use an increased minimum wage as a central plank in their political platforms.
This relationship amongst the conservative and liberal politicians has seen its correlation extended to states and cities that have similar ideologies. Red states tend to keep their minimum wage policies in line with the federal minimum wage, while blue states, or at least their larger municipalities, often increase the minimum wage rates to levels that can go as far as to double the federal minimum.
In the following subsections we will discuss the history of the minimum wage, debate the laws that govern minimum wages and how they can vary within regional boundaries, and finally, we will onverse on the effectiveness of the minimum wage laws and its impact on wage payment policies and strategies. History This United States can trace the creation of its minimum wage policy at the Federal level back to 1938, when the Fair Labor Standards Act was enacted.
Before this, there had been minimum wage laws at the state level in several instances, but the legality of them had been challenged on a number of occasions by the Supreme Court of the United States. Jonathan Grossman’s detail of the struggle revels that the Supreme Court repeatedly struck down rulings in favor of employees that were ot being paid the minimum wages established by their states. In the cases Hammer v. Dagenhart and Adkins v. Children’s Hospital the Supreme Court ruled against minimum wage laws on the grounds that they were a violation of liberty of contract.
In 1936 the Supreme Court once again made a similar ruling in a case where the manager of a laundry, Joseph Tiplado, had been paying his employees only $10 a week when the minimum wage in New York state was $14. 88 a week. Tiplado had been so unscrupulous that he attempted to avoid New York’s minimum age law by paying his employees the minimum wage, but coercing them to return $4. 88 to him (1978). After this ruling, public opinion and outrage reached an unprecedented level with the Supreme Courts rulings.
The election of 1936 further reinforced the publics will to see some progress made in terms of social progress when Franklin D. Roosevelt won the most lopsided election in United States history by winning every state other than Maine and Vermont. Franklin D. Roosevelt had made a federal minimum wage part of his election promise, and used his landslide election as proof hat the people of the United States were in favor of his New Deal policies. Knowing that the Supreme Court would stand in the way of any federal minimum wage law, he threatened to stack the Supreme Court with six additional justices.
While historically this has been viewed in a negative light, the threat may have been what prompted one of the pivotal events in United States history, and certainly in the history of the Supreme Court, the “Big Switch”. The big switch is so named because Justice Owen Roberts, who had always sided with the conservative justices and voted against minimum wage laws, witched his position on the matter and voted in favor of a minimum wage law in the West Coast Hotel Company v. Parish case. With this precedent being made, President Roosevelt had a clear path to establishing a federal minimum wage, and did so with the Fair Labor Standards Act.
The Fair Labor Standards Act set a minimum wage rate of $0. 25, which adjusted for inflation is close to $4. 19 today. The Fair Labor Standards Act passed it litmus test soon after in 1941, with the United States v. Darby Labor Company case. In that case the Supreme Court ruled in avor of the Fair Labor Standards Act by explicitly agreeing that the United States Congress had the power to regulate wage payment policy because of their power to regulate commerce granted to them by the commerce clause in the United States Constitution.
While politically there was opposition to the minimum wage law from the Supreme Court, there was no such discord between economists, at least not initially. According to Alan Kruger, the modern argument amongst economists about whether the minimum wage has a positive impact on our economy was nonexistent in the 1930’s and 1940’s. He states They recognized that there was nothing optimal in the way that employers set wages, and that the economy would function better if the minimum wage set a floor below which wages could not fall. An adequate wage floor would also improve employee morale and bring more workers into the job market.
When employers have monopsony power over workers because of frictions in the job market, a skillfully set minimum wage could provide a standard that clears the market, and raises the purchasing power of households to buy, as Franklin Roosevelt put it, “the products of farm and factory. The institutional school of labor economics, led by Lester, John Dunlop, Clark Kerr, and others, recognized that wage setting in the real world involved a complex balance of concerns about morale, employee loyalty, turnover, bargaining power, and concerns about relative pay- as well as supply and demand. 2015, p. 533)
This line of thought was not entirely new; in fact the view that job providers would not set the proper payment levels as determined by the market was an idea as old as the United States itself. In 1976, the father of economics, Adam Smith, said hat employers conspired with one another to keep wages as low as they possibly could. Adam Smith not only viewed a minimum wage as being necessary to keep the demand curve of markets properly maintained, but he also viewed them as necessary on a humanitarian level, and for establishing a robust society.
Smith stated, “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 hemselves tolerably well fed, clothed and lodged” (Kruger, 2015, p. 534). As previously stated, the large majority of economists were in agreement that a minimum wage was needed and desirable in the 1930’s and early 1940’s.
However, by the latter half of the 1940’s there begun to be some opposition expressed by economists, notably George Stigler of Chicago, regarding the minimum wage laws. Sigler was one of the first economists to make the argument that minimum wage laws were a detriment to employment, increased the unemployment rate, and did nothing to reduce poverty (Kruger, 2015, p. 34). By the 107-‘s and 1980’s more economists had sided with Stigler’s opinion, and had developed studies to prove his point.
One of the main studies conducted was by Charles Brown, who in 1982 published an article in the Journal of Economic Literature entitled “The Effect of the Minimum Wage on Employment and Unemployment”, along with coauthors Curtis Gilroy and Andrew Cohen. In the article the authors made reference to a statistic that would provide opponents of minimum wage laws with the ammunition to prevent any increase in the minimum wage for years to come.
