The Minimum Wage Law: Why It's Necessary

The minimum wage law in the United States was established by the Fair Labor Standards Act (FLSA) in 1938. The Act set a federal minimum wage of 25 cents per hour and was signed into law by President Franklin D. Roosevelt. The purpose of the minimum wage law was to stabilise the post-depression economy and protect workers, creating a minimum standard of living to safeguard employees' health and well-being. The law also imposed overtime pay and outlawed many forms of child labour. Since its inception, the federal minimum wage has been raised more than 22 times, with the current rate at $7.25 per hour.

The Fair Labor Standards Act of 1938

The FLSA was drafted in 1932 by Senator Hugo Black, whose proposal for a thirty-hour workweek faced fierce resistance. A revised version of the proposal was passed in 1938, with support from several notable figures, including Frances Perkins, Secretary of Labor, and Clara Mortenson Beyer from the Bureau of Labor Standards within the United States Department of Labor. The Act adopted an eight-hour workday and a forty-hour workweek, with workers earning a minimum wage and time-and-a-half overtime pay. The minimum wage was set at 25 cents per hour, with a maximum workweek of 44 hours. The Act also prohibited children under eighteen from certain dangerous jobs and children under sixteen from working in manufacturing or mining or during school hours.

The FLSA was a comprehensive federal scheme that provided for minimum wages, overtime pay, record-keeping requirements, and child labor regulations. The purpose of the minimum wage was to stabilize the post-depression economy and protect workers, creating a minimum standard of living to protect employees' health and well-being. It was also intended to aid the lowest-paid workers in the nation, who lacked the bargaining power to secure a minimum subsistence wage. The FLSA specifically provided for a minimum wage for full-time and part-time workers in both the public and private sectors.

The FLSA's requirements apply only to "employees," excluding independent contractors. Courts determine whether an individual is an employee under the FLSA by focusing on the economic reality of the relationship. The key issue is whether the individual is economically dependent on the business they provide services for. Courts also consider factors similar to those used in common law to differentiate employees from independent contractors, such as the degree of control the employer has over the way the work is performed.

Congress exempted certain employees from the minimum wage provisions, including executives, administrators, professionals, and outside salespersons, likely because these employees had a higher level of bargaining power and were less vulnerable to overreaching by their employers. Other exceptions applied to workers with disabilities or full-time students.

The FLSA has been amended several times since its enactment to extend its coverage, raise the minimum wage, and make other changes. For example, in 1940, an amendment was enacted to address the undesirable effects of the minimum wage on the economies of Puerto Rico and the Virgin Islands, establishing special industry committees to determine minimum wage levels in those territories. In 1949, the minimum wage was raised from 40 cents to 75 cents per hour for all workers, and coverage was expanded to include workers in the air transport industry. Subsequent amendments continued to broaden the scope of the Act and increase the minimum wage.

The fight against sweatshops

Some of the earliest critics of sweatshops were found in the abolitionist movement, who saw similarities between slavery and sweatshop work. As slavery was successively outlawed in industrial countries, some abolitionists sought to broaden the anti-slavery consensus to include other forms of harsh labour. The first significant law to address sweatshops was the UK's Factory Act of 1833, passed at the same time that the slave trade and ownership of slaves were made illegal.

In the US, the earliest minimum wage laws were state laws focused on women and children. These laws were struck down by the Supreme Court between 1923 and 1937. The first federal minimum wage law, which exempted large parts of the workforce, was enacted in 1938 and set rates that became obsolete during World War II.

The anti-sweatshop movement gained momentum in the late 20th century with the advent of globalisation, as movements were formed to protest the exploitation of workers in poorer countries by companies based in wealthy nations. Transnational corporations (TNCs) such as Nike and Gap have contributed to the loss of autonomy for many sweatshop labourers, who often have little choice but to accept exploitative working conditions.

The #WhoMadeMyClothes hashtag, launched in 2013, and a 2015 video titled "The 2 Euro T-Shirt - A Social Experiment" are examples of how the movement has utilised social media to spread awareness.

While anti-sweatshop movements have had some success in improving working conditions and increasing wages, there is debate about the effects of such campaigns on employment. Some argue that sweatshops provide opportunities for workers in developing countries and that stricter regulations could reduce Third World employment and investment. Others maintain that sweatshops are exploitative and that the focus should be on providing living wages and safer working conditions.

The New Deal

The First Attempts

The Roosevelt administration first attempted to establish a national minimum wage in 1933 with the National Industrial Recovery Act (NIRA). This act suspended antitrust restrictions, allowing industries to enforce their own fair-trade codes, which included raising wages. Roosevelt also pushed employers to voluntarily sign the "President's Reemployment Agreement", pledging to offer a wage of $12 to $15 a week for 35 to 40 hours of labour.

The "Big Switch"

However, in 1935, the Supreme Court struck down the industry codes that the NIRA had enabled, including their minimum wage provisions. This set the stage for the minimum wage to become a major issue in the 1936 presidential election, with Roosevelt promising a renewed push.

In a significant turn of events, in 1937, the Supreme Court upheld Washington state's minimum wage law in the case of West Coast Hotel Co. v. Parrish. This marked a shift in the Court's stance and established that minimum wage laws did not violate the Constitution.

The Fair Labor Standards Act

Following the "Big Switch", Roosevelt asked Secretary of Labor Frances Perkins about the status of the "`nice unconstitutional bill' she had proposed earlier. This bill became the Fair Labor Standards Act (FLSA) of 1938, which established a federal minimum wage of 25 cents per hour. The legislation also included provisions for a maximum workweek of 44 hours and banned oppressive child labour.

The FLSA represented a significant shift in labour policy, as it was the first time the federal government set a minimum wage and established the principle that workers were entitled to a certain amount of pay for their work. The Act has since been amended numerous times to expand its coverage and increase the minimum wage.

Subsequent Developments

Over the years, Congress has broadened the scope of the FLSA to include more workers and raised the federal minimum wage. In 1949, it was increased to 75 cents per hour, and in 1961, the Act was amended to cover employees in large retail and service enterprises, local transportation, construction, and state and local governments.

The federal minimum wage has been $7.25 per hour since 2009, and some states have set higher minimum wages. As of 2024, 30 states, along with the District of Columbia, Guam, Puerto Rico, and the Virgin Islands, have minimum wages above the federal level. The push for a higher minimum wage continues, with proposals to increase it to $15 per hour by 2025.

The role of the Supreme Court

In 1918, the Supreme Court ruled that a federal child labour law was unconstitutional in the case of Hammer v. Dagenhart. Similarly, in 1923, the Court voided a District of Columbia law that set minimum wages for women in Adkins v. Children's Hospital. These decisions set a precedent for the Court's stance on labour laws, and in the 1930s, the Court continued to strike down both state and federal labour laws.

In 1933, President Franklin D. Roosevelt's administration made the first attempt at establishing a national minimum wage with the National Industrial Recovery Act (NIRA). However, in 1935, the Supreme Court ruled the act unconstitutional in Schechter Poultry Corp. v. United States, dealing a blow to the New Deal's efforts to improve labour standards.

Despite this setback, Roosevelt remained determined to overcome the obstacle of Supreme Court opposition. In 1936, the Court's decision in West Coast Hotel Co. v. Parrish marked a turning point. In this case, the Court upheld the constitutionality of a minimum wage law enacted by the state of Washington, reversing its previous trend of striking down labour laws. This "big switch" encouraged advocates of fair labour standards to continue their efforts to develop a federal bill that could withstand judicial scrutiny.

The Fair Labor Standards Act (FLSA) of 1938, which established the first federal minimum wage, was the culmination of these efforts. The bill faced a lengthy and contentious legislative process, with Roosevelt putting his political weight behind it. The final version of the FLSA applied to industries representing about one-fifth of the labour force, setting a minimum hourly wage of 25 cents and a maximum workweek of 44 hours, and banning oppressive child labour.

The Supreme Court upheld the constitutionality of the FLSA in United States v. Darby Lumber Co. (1941), affirming the federal government's power to regulate employment conditions under the Commerce Clause. This decision solidified the role of the Supreme Court in establishing the minimum wage as a fundamental aspect of US labour law.

The impact on businesses

The impact of minimum wage laws on businesses has been a subject of debate among economists and other stakeholders. While some argue that increasing the minimum wage has adverse effects on employment, others contend that it has a positive or neutral impact. Here are some key considerations regarding the impact of minimum wage laws on businesses:

Employment and Wages:

• Increasing the minimum wage can lead to a reduction in employment, especially for young and unskilled workers. Employers may hire fewer workers or cut employee hours to offset the higher labor costs.
• However, some studies suggest that moderate increases in the minimum wage do not significantly affect employment levels and may even create new jobs by boosting purchasing power and demand.
• Higher minimum wages can also lead to a reduction in employee turnover, as workers are more likely to stay in their current jobs when wages increase.

Business Costs and Prices:

• Raising the minimum wage increases labor costs for businesses, which may be passed on to consumers in the form of higher prices. However, the pass-through effect is typically small, resulting in minimal increases in product prices.
• Businesses may also accept lower profits or turn to automation to cope with higher labor costs.

Business Compliance and Competition:

• Minimum wage laws require businesses to ensure compliance with federal, state, and local regulations, leading to additional administrative burdens and costs.
• Small businesses, especially those operating across multiple jurisdictions with varying minimum wage rates, may struggle to keep up with the changing landscape and compete with larger companies.

Impact on Specific Industries:

• Industries with traditionally low-paying jobs, such as retail, hospitality, and fast food, are particularly affected by minimum wage increases.
• Businesses in low-wage industries may also face challenges in retaining employees, as workers may be incentivized to seek higher-paying jobs in other industries.

Economic Growth and Poverty Reduction:

• Increasing the minimum wage can contribute to economic growth by putting more money in the hands of low-wage workers, who are likely to spend the additional income, thereby increasing demand and job growth.
• Higher minimum wages can also help lift people out of poverty and reduce income inequality, although there may be a slight decrease in overall economic output.

Overall, the impact of minimum wage laws on businesses is complex and multifaceted. While there may be challenges and adjustments for businesses, particularly in low-wage industries, the laws also contribute to improved living standards and a stronger economy. The specific effects vary across industries, geographic locations, and other factors, making it essential for businesses to stay informed about the applicable minimum wage rates and adapt their practices accordingly.

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