Minimum Wage Problem 1938-2022

President Franklin D. Roosevelt signed an act of 1933 that set a minimum wage. Although, it was found to be unconstitutional… 

The first federal minimum wage that stuck came in 1938. This set the minimum at $0.25 an hour. And here’s how that’s changed in the years since…

federal minimum wage history

Today, it comes in at $7.25 and that’s been the case since 2009. It’s been the longest stretch without an increase. Of course, some states have set higher minimum wages and there are other caveats. But the federal level gives us a useful baseline. 

To see the problem, I’ve adjusted each year for inflation… 

federal minimum wage history inflation adjusted

Although minimum wage has climbed, a dollar today is worth much less than it was years ago. Inflation is a hidden tax that we all pay. As a result, the purchasing power of minimum wage today is the lowest it’s been in more than 70 years. 

I used the BLS inflation calculator for these adjustments. And of course, there are many ways to measure inflation. For example, there have been basket and hedonic adjustments over the years. But nonetheless, this shows a problem with minimum wage. 

Although, to play devil’s advocate, is it really a problem? Many states already have higher minimum wages. And since living costs vary between states, shouldn’t it be up to States or local governments to decide? 

For example, we all know California has much higher living costs. Here’s how California’s minimum wage has changed over the decades… 

California minimum wage history

But even with higher state minimums, many businesses are struggling to hire and retain employees. As a result, they’re already increasing what they pay and adding other benefits. And that’s without governments forcing their hand. 

As Adam Smith eloquently put it, there’s an invisible hand at work. There’s natural supply and demand within an economy and in this case, for employees. But governments have warped the natural order with their forced shutdowns, massive rounds of stimulus and other easing. 

In other words, the Fed has poured some strong drinks over the past few years. It’s felt good with a lot of cheap capital sloshing around. Assets across the board kept hitting all-time highs. Although, the hangover is starting to hit… 

The Fed has stopped the free checks and is hiking rates. If it keeps this course of action – which is necessary to prevent a price-wage spiral –, more people will need to take jobs without being as selective. And it really depends on how far this recession goes. But that’s a topic for another time. 

When it comes to a minimum wage, I’m not sure on what’s best. Like any complex system, I can come up with a big list of tradeoffs… both in favor or against higher minimum wages. Or removing them all together. 

Are you for or against a mandated minimum wage? Should it be set by the Federal or state governments? Or should it only be up to the businesses to decide? 

Please let me know in the comments down below or on my YouTube channel. The videos tend to have more comments. Either way, it’d be great to hear your insight. And thanks for stopping by!

Invest mindfully,

Brian Kehm

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