BROAD ECONOMIC ASPECTS OF THE MINIMUM WAGE A. Economic Trends and Minimum Wage Changes Price movements influence the relative ease or difficulty with which adjustment to an increased minimum wage may be made. The 25-cent and 30-cent statutory minima provided by the original Fair Labor Standards Act became effective in the period October 1938 to October 1939, a period of relative price stability. Thus, the economic adjustment to the 25-cent rate and the short-term adjustment to the 30-cent rate was not facilitated by a general upward trend in prices. Unfortunately little detailed information on the economic effects of these early minimum wages is available. It is not even known to what extent the minimum rates were complied with, since extensive enforcement activity did not begin until 1940.
The long-term adjustment to the 30-cent rate was made easier by the rapid upward trend in wholesale prices generated by World War II. Experience with subsequent minimum wages also has been during periods of rising price levels. Adjustments to wage orders raising the minimum rates above 30 cents and to 40 cents took place for the most part during World War II. Similarly the 75-cent minimum rate became effective only shortly before the invasion of South Korea, and its long-term impact was cushioned by rapidly spiraling prices.
The $1.00 minimum was passed in August 1955, at about the time when the economy was entering upon another period of rising wholesale prices. By March of 1956, the effective date of the $1.00 minimum, both the Wholesale Price Index and the Consumer Price Index were on the uptrend. However, the increases were not as great as those which eased adjustments to the 40- and 75-cent minima, and the impact of the $1.00 minimum was greater than in the case of the previous increases in the minimum rates.
The trend in prices is only one of the general indicators which should be examined in the study of the economic effects of minimum wages. The period since passage of the minimum wage in 1938 has been one of generally expanding economic activity. The nation's output of goods and services and its employed labor force have increased rather steadily since that date in response to the influences of war and the growing population. Accompanying the expansion in economic activity was an almost constant rise in the level of wages as well as prices. Average hourly earnings in manufacturing, which were 63 cents at the time of the adoption of the 25-cent minimum in October 1938, had risen to $1.95 in March 1956, when the S1.00 minimum became law.