History of Minimum Wage

Getting by on the Minimum Wage

Minimum wage is a hot topic in the United States and around the world. Today, most of the world’s countries have some type of minimum wage.

Why was minimum wage introduced in the first place? Which country had the world’s first minimum wage? Where is minimum wage going in the future? Today, we’re going to explain the history of minimum wage in the United States and around the world.

The World’s First Minimum Wage

New Zealand passed the world’s first national minimum wage laws way back in 1894.This minimum wage law covered all businesses and all industries across the entire country.

Australia (specifically, Victoria), was the second jurisdiction in the world to pass minimum wage laws. At first, Victoria’s minimum wage laws only covered certain industries: they only covered six industries that were notorious for paying low wages. By 1904, these minimum wage laws had grown to cover 150 industries. New South Wales and Western Australia had also passed their own minimum wage laws two years earlier in 1902.

Following the “minimum wage experiment” in Australia and New Zealand, other countries began considering enacting minimum wage in their own borders.

As a result, the UK passed its own set of minimum wage laws in 1909.

Minimum Wage in the United States

Minimum wage in America isn’t as old as you might think: the first federal minimum wage was first introduced by Franklin Delano Roosevelt in 1938. Minimum wage was set at 25 cents an hour, which works out to about $4 per hour in today’s money.

That minimum wage was introduced as part of the Fair Labor Standards Act (FLSA). The FLSA also covers things like youth employment standards, overtime pay, recordkeeping, and standards for government employees at the local, state, and federal levels.

The first federal minimum wage laws were passed in America in 1938. But prior to that, at least one state had passed its own minimum wage laws. Massachusetts passed minimum wage laws in 1912 (although they only covered women and children).

Since FDR’s first federal minimum wage in 1938, the minimum wage has been raised 22 times by 12 different presidents.

US minimum wage is purposely set up not to rise with inflation. Minimum wage can only rise with congressional action. In other words, if the 12 presidents never raised minimum wage over the years, then we would still be getting paid a minimum of 25 cents per hour for our work.

Minimum Wage Increases Over the Years

October 1938 (FDR): $0.25/hr ($4.15/hr in 2014 dollars)

October 1939 (FDR): $0.30/hr ($5.05/hr)

October 1945 (Truman): $0.40/hr ($5.20/hr)

January 1950 (Truman): $0.75/hr ($7.29/hr)

March 1956 (Eisenhower): $1/hr ($8.61/hr)

September 1961 (Kennedy): $1.16/hr ($8.97/hr)

September 1963 (Kennedy): $1.25/hr ($9.56/hr)

February 1967 (Johnson): $1.40/hr ($9.80/hr)

February 1968 (Johnson): $1.60/hr ($10.75/hr)

May 1974 (Nixon): $2/hr ($9.49/hr)

January 1975 (Ford): $2.10/hr ($9.13/hr)

January 1976 (Ford): $2.30/hr ($9.47/hr)

January 1978 (Carter): $2.65 ($9.51/hr)

January 1979 (Carter): $2.90/hr ($9.34/hr)

January 1980 (Carter): $3.10/hr ($8.80/hr)

January 1981 (Carter): $3.35/hr ($8.62/hr)

April 1990 (Bush): $3.80/hr ($6.82/hr)

April 1991 (Bush): $4.25/hr ($7.30/hr)

October 1996 (Clinton): $4.75/hr ($7.08/hr)

September 1997 (Clinton): $5.15/hr ($7.51/hr)

July 2007 (GW Bush): $5.85/hr ($6.61/hr)

July 2008 (GW Bush): $6.55/hr ($7.12/hr)

July 2009 (Obama): $7.25/hr ($7.80/hr)

Above statistics come courtesy of Time.com.

As you can see, the minimum wage has increased in a linear fashion in terms of dollars, but in terms of real dollars, minimum wage has declined sharply from its highest point in February 1968.

Of course, the above rates only cover the federal minimum wage. Most states – and even some cities – have minimum wages significantly higher than the federal level.

San Francisco’s minimum wage, for example, rose to $12.25 on May 1, 2015. On July 1, 2018, minimum wage will rise once more to $15 per hour.

Washington has the nation’s highest minimum wage, clocking in at $9.47, while Oregon has a minimum wage of $9.25 in second place. California plans to raise its minimum wage to $10 per hour in 2016.

Minimum wage increases have been fairly steady since 1938. There have been two major breaks in minimum wage increases. The first large break took place between January 1981 and April 1990. Then, the second major break took place between September 1997 and July 2007, which was the longest period during which the minimum wage was not adjusted.

Minimum Wage Averages At 60% of the Poverty Level

Another important thing to recognize about minimum wage is its relation to the poverty level. Using a work year of 50, 40-hour work weeks, we can get the annual earnings expected from a minimum wage worker.

In 1968, minimum wage as a percentage of the poverty level was at 99%. In other words, someone working a minimum wage job full-time for one year would be just 1% under the poverty line.

Since 1989, minimum wage as a percentage of the poverty level has averaged around 60%.

Minimum Wage Laws from State to State

All US states but 5 have their own minimum wage laws:

Five southern states have no minimum wage laws, including Louisiana, Mississippi, Alabama, Tennessee, and South Carolina.

Four states have a state minimum wage lower than the federal minimum wage, so the federal minimum wage automatically applies (Wyoming, Minnesota, Arkansas, and Georgia)

20 states have laws that lock the state’s minimum wage with the federal minimum wage

21 states and the District of Columbia set their rates higher than the federal minimum wage.

Characteristics of Minimum Wage Workers

To understand how minimum wage laws work in the United States (and also around the world), it helps to understand who, exactly, mime wage workers actually are. In 2013, the Bureau of Labor Statistics compiled data about the millions of minimum wage employees across the country:

In 2013, approximately 1.5 million US workers aged 16 and over earned exactly the federal minimum wage of $7.25 per hour.

Another 1.8 million US workers received wages below the federal minimum wage.

Together, the above two groups make up 4% of all hourly paid workers in America

In 1979, 13% of US wage workers received minimum wage. In 2012, that number had dropped to 5%. The 2013 figure of 4% is an all-time low.

Half of all minimum wage workers are age 25 or younger. Approximately 20% of all hourly paid workers are age 25 or younger.

20% of employed teenagers earned minimum wage or less, compared to about 3% of workers over age 25.

62% of minimum wage workers are women and 38% were men. 5% of women in America earned minimum wage or less, compared to 3% of men.

64% of minimum wage workers are part-time workers while 36% are full-time workers.

47% of minimum wage workers were in the South while 24% were in the Mid-west, 18% were in the Northeast, and 12% were in the West.

64% of minimum wage workers are in service occupations, with 47% in food preparation and related serving professions.

The two states with the highest percentage of hourly paid workers earning federal minimum wage or lower are Tennessee and Idaho (both at around 7%).

The states with the lowest percentages of hourly paid workers earning minimum wage or lower are Oregon, California, and Washington, all of which are under 2%.

Annual Earnings for Full-time Minimum Wage Workers

Full-time earnings for minimum wage earners are estimated based on a 40-hour work week and 50 working weeks per year.

The current federal minimum wage is $7.25 per hour, which leads to a full-time minimum wage of $15,080 per year.

In 2012, the poverty threshold for a single person was $11,945 and $22,283 for a family of four with two children.

An individual who works minimum wage for a full year will make enough to live above the poverty line. However, if that individual is the sole provider for a family of four, then that individual is only earning 65% of the federal poverty guideline according to research collected by the UC Davis Center for Poverty Research.

Minimum Wage Laws Around the World

New Zealand, Australia, and the United Kingdom were the first countries in the world to pass minimum wage laws.

Since then, most countries around the world have passed minimum wage laws of some form or another. Here’s a brief overview of minimum wage history in other nations around the world:

Australia

Australia was the second country in the world to pass minimum wage laws. After Victoria, New South Wales, and Western Australia passed laws in 1902 and 1904, the country of Australia passed a “basic wage” act with the Harvester Judgment of 1907.

The Harvester Judgment provided a fair living wage for workers across the country and was considered a case with “national ramifications” and “international significance”.

Today, Australians earn the highest minimum wage in the developed world, earning $17.29 per hour as of 2015.

Brazil

Brazil’s national minimum wage is adjusted every year by federal law. In 2012, minimum wage was R$ 622 ($173.57 USD) per month, which works out to R$ 20.7 ($5.78 USD) per day and R$ 2.59 ($0.72 USD) per hour.

Canada

Canada’s minimum wage laws vary between provinces and territories and there is no federal minimum wage law.

Minimum wage varies from $10.20 to $11 in provinces across the country (Alberta and Saskatchewan have the lowest minimum wage at $10.20 while Ontario has the highest at $11 per hour).

The territories, meanwhile, have the highest minimum wages in the country, including $10.86 per hour in the Yukon, $12.50 per hour in the Northwest Territories, and $11 in Nunavut.

According to 2012 statistics from Stats Canada, the average full-time retail wage across Canada was $19.03 and the average part-time retail wage was $11.94 per hour.

Certain Canadian provinces also have restrictions where certain professions – like liquor servers – earn a lower minimum wage, while other professionals – like homeworkers – earn a higher minimum wage.

China

China’s history of minimum wage legislation is very short. The country passed its first minimum wage law in 2004 as part of the Regulations on Enterprises Minimum Wage. The country now has two minimum wages: one monthly minimum wage for full-time workers and a separate hourly minimum wage for part-time workers.

Minimum wages also vary widely throughout China because different parts of China have very different standards of living. For a full list of minimum wages across China, click here.

European Union

18 of the 27 member states in the EU have national minimum wages.

Certain countries (Sweden, Finland, Denmark, Switzerland, Austria, Italy, and Cyprus) have no national minimum wage laws but rely on unions, trade groups, and employer groups to set minimum earnings through collective bargaining.

Other countries – like Germany – just recently passed minimum wage laws early in 2015.

France

France introduced its first minimum wage law in 1950 as part of the Inter professional Guaranteed Minimum Wage act. That act established two minimum wages: one wage was enacted for the Paris region and another wage applied to the rest of the country.

Today, France’s national minimum wage is €1,457.52 per month.

France also updates its minimum wage every January. However, the increase in minimum wage cannot be lower than the rate of inflation for the current year. In most recent years, the increase was about twice as much as inflation (5% per year compared to average inflation of around 2%).

Germany

Many people are surprised to learn that Germany did not have a minimum wage law until January 1, 2015. Germany just recently set its national minimum wage law as part of the MiLoG – Mindestlohngesetz.

That law requires Germany to update its minimum wage every other year according to the results of a Minimum Wage commission. Today, Germany’s minimum wage is set at €8.50 per hour.

Ireland

Ireland’s minimum wage was introduced in 2000. The country has some of the most unique minimum wage laws in the world, with certain reductions applying to different workers (particularly young workers).

For example, as of 2011, the minimum wage in Ireland was €8.65 per hour. However, certain groups receive minimum wage reductions:

30% reduction for all employees under 18

20% reduction for employees over 18 in their first year of employment in any job since they turned 18

10% reduction for employees over 18 in their second year of employment in any job since they turned 18

That minimum wage can be reduced even further by up to €7.73 per day if lodgings or food are provided as part of the job.

Trainees also receive a lower minimum wage during training, ranging from 25% for the first third of the course to 10% on the last third of the course.

Japan

Japan’s minimum wage varies according to the industry and region. Industries and regions both have their own unique minimum wages. In situations where one minimum wage is higher than the other, the higher minimum wage of the two will apply.

As of 2011, Japan’s minimum wage was ¥645 to ¥837 ($5.30 to $6.88 USD) per hour, depending on the region.

New Zealand

New Zealand was the world’s first country to pass a minimum wage law and has strong minimum wage laws to this day. New Zealand passed its minimum wage law across the country with the Industrial Conciliation and Arbitration Act of 1894.

Today, New Zealand has a countrywide minimum wage of $14.75 per hour. However, there is no minimum wage for employees under 16 years of age, and the minimum wage for employees between 16 and 17 is $11 per hour.

United Kingdom

The United Kingdom often claims to have had the world’s first local minimum wage laws. Starting in 1524, certain towns in the UK began regulating local wage levels.

More recently, the country created the National Minimum Wage (NMW) in 1999 at a rate of £3.60 per hour. That wage only applied to workers 22 years of age and older.

Today, minimum wage in the UK stands at £6.50 per hour for workers aged 21 and over, £5.12 for workers between ages 18 and 20, and £3.79 for workers under age 18.

Apprentices also have their own minimum wage of £2.73 between ages 16 and 18. That wage also applies to apprentices over 19 or over who are in their first year.

OECD Rankings of Minimum Wage in Countries Around the World

The Organization for Economic Co-Operation and Development (OECD) recently released a chart showing minimum wage laws around the world in terms of US dollars per hour after taxes at purchasing power parities:

As mentioned above, Australia leads the way with the world’s highest minimum wage. To view a complete list of minimum wage laws in countries around the world, check out this Wikipedia article for a good summary.

Countries with No Minimum Wage Laws

Certain countries in the world have no minimum wage laws. As you might expect, many of these countries are in poorer parts of the world, like sub-Saharan Africa and parts of the Middle East.

A rare few developed countries also have no minimum wage laws, including Hong Kong, Saudi Arabia, Chile, Denmark, Singapore, and United Arab Emirates.