ANALYSIS OF EXPERIENCE by U.S. Department of Labor Part I. Introduction and preliminary findings A. Introduction When the minimum wage under the Fair Labor Standards Act was increased from 75 cents to $1.00 an hour, it was estimated 2 million of the 24 million workers subject to the Act were being paid less than $1.00 an hour, and that an average increase of 15 cents an hour would be required to bring their wages to the new minimum level. In adopting the increased minimum, the Congress recognized that the information presented to its Committees did not provide an adequate basis for evaluating the effects of minimum wages. Section 4 (d) of the amended Act directs the Secretary of Labor to include in his Annual Report: ". . . an evaluation and appraisal . . . of the minimum wages established by this Act, together with his recommendations to Congress. In making such evaluation and appraisal, the Secretary shall take into consideration any changes which have occurred in the cost of living and in productivity and the level of wages in manufacturing, the ability of employers to absorb wage increases, and such other factors as he may deem pertinent." The basic effect of an increased minimum wage on employers with employees paid less than the minimum wage is to increase costs per hour of labor. The adjustment to such an increase in costs may be one or a combination of the following: (a) production per hour of labor may be increased so that labor costs per unit of output are held constant even though costs per hour of labor have increased; (b) prices may be increased; (c) profits may be reduced or affected firms may discontinue business. . . .
Any of these three methods of adjustment could entail reduction in hours of work or in employment opportunities. . . .
An increased minimum wage, of course, directly affects the wages of employees subject to the Act who were previously paid less than the minimum rate. It may also result in increases in wages of employees who previously were paid at the minimum wage level or above, to maintain all or part of traditional differentials. The minimum wage may also have outward effects on wages of employees not subject to the Act. . . .
The wage effects of the minimum wage may result in changes in wage differentials, among occupations and among industries, regions and various other plant characteristic groups.
It is apparent now that the extent of violation of the $1.00 minimum wage is greater than was the extent of violation of the 75-cent minimum. Minimum wage violations were disclosed in 21 percent of the investigations made for enforcement purposes during the six-month period, July— December 1956. A roughly comparable period of investigation activity to obtain compliance with the 75-cent minimum wage is July—December 1950. Of the investigations made during that period, 18 percent disclosed minimum wage violations. The average amount of underpayment per establishment was also greater in the 1956 period, $504 compared to $240 in 1950. Also, the amount of underpayment per employee was greater, $63 in 1956 compared to $41 in 1950. . . .
There is some evidence of loss of jobs resulting from the minimum wage, but no indication of the overall extent of such loss. There is also evidence of reduction in hours of work to reduce overtime premium pay. It is not known to what extent reduction in employment in some plants was accompanied by increased employment in others, nor to what extent reduction in length of workweeks resulted in additional jobs. Information now available on decreases in employment relate largely to the shortrun period, February to April 1956. The longer term adjustment may result in restoration of jobs, or in elimination of many more. Data on the extent of discharges because of the minimum wage and on changes in levels of employment will be obtained in the later phases of the study program.