With the rise of the Industrial Revolution, the United States, Europe and other parts of the developed and developing world ushered in a new phase of work, pay and prosperity. While the factory owners’ pockets bulged with profits, laborers were experiencing a new kind of work environment, a work environment which was not always friendly. Child labor, endless work days, no vacation time and other outrages were common place until the problems got so bad that government stepped in. Minimum wage was presented as a way to protect poor workers and the popular public policy caught on, not just within the United States, but throughout the world as well.

In fact, the first countries to set a minimum wage were Australia and New Zealand in the early 1890s, followed by the United Kingdom in 1909 and decades later, in 1938, by the United States. The story goes that a little girl handed campaigning politician, Franklin Roosevelt, a note asking him to help girls who were being paid far less than they were promised, or deserved, for their work. Although the Supreme Court had already nixed a bill which attempted to set a minimum wage in 1932, Roosevelt pushed for it again. The Fair Labor Standards Act was passed in 1938 along with the first minimum wage requirement of $0.25 per hour. This would equate to a whopping $3.83 per hour in 2010 when adjusted for inflation. Today, there is a federal minimum wage, but states can also elect to set their own minimum wages. For example, Washington State leads the pack requiring $9.04 for workers even though the federal requirement is only $7.25.

Federal and State Minimum Wage Rate: 1940 to 2011 – Dept. of Labor
 

Minimum wage was established as a way to protect the poor from being taken advantage of and put an end to sweatshops filled with employees willing to work for pennies, only because they had no other option. Minimum wage is often referred to as a “living wage”. This means, a person making this dollar amount should be able to buy necessities such as food and shelter for a family of four.

There are two camps of economists: those for and those against minimum wage. The ones who are pro-minimum wage argue that the legislation puts more money in the hands of people who will spend it, therefore boosting the economy and commerce. Workers who are often hired for lower wage jobs are often from marginalized groups such as minorities, women and the young. Minimum wage is a mechanism to not only protect these groups, but also help them make enough to participate as spending members of society.

The validity of using minimum wage as a tool for protecting the poor and stimulating the economy is hotly debated by economists, policy makers and special interest groups such as unions. One of the well-represented drawbacks of an hourly wage requirement is that it leads business owners to hire fewer people because they cannot afford to hire more. This means that employees either have to do more work or machines are used for jobs that were once held by people. In the end, fewer employees are hired for minimum wage jobs, typically the only work options available to marginalized groups. Therefore, the same people are hurt who the wage policy is meant to protect.

An additional argument against minimum wage is that it leads to inflation, specifically cost-push inflation. How this concept works is that employers, forced to pay an employee more than they would have elected, must pass along this added expense to their customers, pricing products higher than they need to be.

A commonly sourced study from the early 1990s, completed by Dr. David Card and Dr. Alan Krueger of Princeton, looked at hiring and minimum wage in New Jersey and Pennsylvania. The attempt of this study was to put to rest theories that minimum wage hurt the economy more than it helped. At the time, New Jersey had a higher wage requirement than Pennsylvania. The study showed that despite this difference, New Jersey still hired for more hours of restaurant industry work at minimum wage than Pennsylvania. However, this study was deemed untrustworthy by countless economists and experts, claiming the research was not thorough and the data not accurate.

There are endless supplies of studies completed on what happens when minimum wage is raised. The truth is it is always a little different based on things like the economy, society, geographical location and more. No matter how many economic indicators point to the minimum wage either helping or hurting, it will likely always be a political debate. For now, the minimum wage is slowly creeping up in many states as politicians push to protect the poor in one way they know how, whether or not it is effective.