Early efforts to establish minimum wages in the United States were part of a broader response to industrialization, urbanization, and mass immigration in the first decades of the twentieth century. Progressive reformers were broadly concerned with compensation and working conditions, but also hoped that higher standards would protect white male breadwinners from the “wearing competition” of those (women, children, immigrants, African Americans) who “unfairly dragged down the wages of more deserving workers.”  

In 1912, Massachusetts led the way with a law that calibrated the minimum to a basic standard of living, with allowances for the competitive conditions of particular occupations and industries. The next year, eight other states (Wisconsin, Minnesota, Washington, Oregon, California, Colorado, Nebraska, and Utah) followed suit—some on the Massachusetts model, others introducing new provisions or enforcement standards. But, in all of these settings, the law applied only to women and minors—reflecting both the goal of easing such workers out of the labor market, and the assumption that men did not require such paternal protection.

The reach of these laws, furthermore, was sharply curtailed by the courts. In Lochner v. New York (1905), the Supreme Court struck down a New York maximum hours law on the grounds that it “restricted the worker’s right to set the price for his own labor." In Hammer v. Dagenhart (1918), the Court chilled federal action, ruling that the commerce clause proscribed federal regulation of child labor in the states. And in Adkins v. Children’s Hospital (1923), the Court reaffirmed the “freedom of contract” implied by Lochner, invalidating a District of Columbia law that set minimum wages for women.

It was not until the onset of the Great Depression that national politics again tested these constraints. The New Deal began experimenting with wage regulation under the President’s Reemployment Agreement (1933), which asked employers to sign pledges, eventually covering some 16 million workers, that shortened the work week and set a minimum wage of forty cents/hour (in inflation-adjusted terms, pretty close to the current minimum of $7.25). This was followed, and formalized, by the National Industrial Recovery Act (NIRA) whose “codes of fair competition” allowed the federal government to set minimum wages and maximum hours by industry.

The Supreme Court remained skeptical. In 1935, it struck down the NIRA (echoing Dagenhart) as a violation of the commerce clause. A year later, in Morehead v. New York, the Court harkened back to Lochner when it invalidated a state minimum wage law as an affront to the freedom of contract. In this tenuous legal climate, the New Deal moved cautiously. The Walsh-Healy Act (1936) set “prevailing wage” labor standards for all government contracts, extending the reach of the 1931 Davis-Bacon Act, which did the same for public works. In his 1936 campaign, Roosevelt pledged to push for more general wage and labor standards. And in 1937, the Court reversed course—ruling, in West Coast Hotel Company v. Parrish, that freedom of contract could be regulated or restrained when larger social goals were at stake or when the standing of the parties to the contract were starkly unequal [for more on the New Deal minimum wage cases].

This set the stage for the passage of the Fair Labor Standards Act (FLSA) of 1938, which banned most child labor, established a maximum workweek of forty-four hours, and set a minimum hourly wage of twenty-five cents. The wage law was seen as both a recovery measure and, coming on the heels of the National Labor Relations Act (also upheld by the Supreme Court in 1937), as an essential complement to the protection of labor’s rights. The minimum wage, argued the Administration, would "underpin the whole wage structure. . . . [to] a point from which collective bargaining could take over."

But if the courts had conceded to the justice and logic of basic labor standards, the South dug in its heels. Leery of the implications of universal or national standards, southerners in Congress won sweeping exemptions: the FLSA would not cover agricultural workers, domestic workers, or employees in retail or service firms doing less than half of their business in interstate commerce. At is passage, the FLSA reached only about a fifth of the labor force. And the task of setting the minimum wage, vested in professional wage commissions in most other countries, was left with Congress. The wage would slide, as inflation undercut its purchasing power, until Congress deigned to add another dime or quarter to the base rate.

The limits of the FLSA were apparent after 1938, as coverage actually narrowed (with new exemptions for laundries, cleaning, and tailoring in 1945) and the wage itself inched up, to seventy-five cents/hour in 1949, and one dollar/hour (about $6.25 in 2013 dollars) in 1950. Not until the 1960s did Congress revisit the exempted occupations—adding coverage for large retailers and all interstate employers in 1961, and rolling in some agricultural and some public workers in 1966.

After the late 1960s, legislative battles were increasingly colored by the powerful (if false) assumption that any increase in the minimum wage’s rate or coverage came at the expense of employers and displaced low-wage workers. Periodic increases were made necessary by persistent inflation, but still did not keep pace. Nixon vetoed an effort to expand coverage in 1973, but relented to Congressional pressure a year later—finally extending the FLSA’s reach to local and state public employees. Looking to slash business costs in any way he could, Reagan declared the minimum wage “public enemy number one” and allowed a full decade to pass between increases—during which time the minimum lost over a quarter of its value in real dollars. For its part, the Clinton administration pushed through two increases, but only by giving in on the tax side: “Since we know that a minimum wage increase kills jobs,” reasoned then–House Speaker Newt Gingrich, “there ought to be a package that includes other things that create more jobs to make up.”

Both the establishment of the federal minimum late in the New Deal, and every subsequent legislative battle over increasing it, have been marked by grave concerns about interfering with markets or freedom of contract, and by dire predictions that each increase would drive business into bankruptcy and workers into the soup lines. But a raft of recent research has put to rest the old saw that a higher minimum wage kills jobs or repels investment. Because a majority of minimum-wage earners work in outsourcing-resistant service jobs, businesses will have a hard time handing out pink slips. Most low-wage workers, in turn, work not for vulnerable small businesses, but for large—and in recent years quite profitable—corporations. And the ancillary benefits of raising the floor—including boosts to productivity and purchasing power—are more substantial and lasting than any direct employment effects.

The minimum wage, part of a bundle of New Deal policies that sustained the bargaining power of workers, dampens inequality by maintaining a floor under wages. But its effectiveness depends on its real value, its reach, and its enforcement. Most importantly, the real value of the minimum has declined dramatically over the last generation [see graphic below]. In the first thirty years after the passage of the FLSA, Congress raised the minimum wage eight times, pushing it over $9.00/hour (in 2013 dollars) in 1969. Since then, the dollar value of the federal minimum wage has been bumped another fourteen times, but has failed to keep pace with inflation—and fallen substantially in real value.

In the United States, the minimum wage held up the lower “tail” of the earnings distribution into the 1970s, but—as its real value plummeted—so too did the fortunes of low-wage workers. The falling minimum widened the gap between low-wage and median-wage workers through the 1970s and 1980s, accounting for about a third of the growing gap between low- and median-wages for women, and about a fifth of the same gap for men.