The Curious History of the Minimum Wage

This is an excerpt from a longer story that I did in 2015 about Thomas Piketty's book Capital in the Twenty-First Century. To see the full story, click here.

Wheat harvest, Ohio. Ben Shahn/FSA, 1938.

The Emperor's New Clothes: The Minimum Wage
One of the great values of Piketty's book are the moments when, as in Hans Christian Andersen's story, the emperor is leading a parade through town with no clothes on -- and these moments just flow seamlessly from the data. A good example is the minimum wage. Piketty tells the story of the minimum wage in two countries: France and the United States.

France first got the minimum wage in 1950, but for nearly two decades it stagnated, falling "farther and farther behind the average wage." (P. 289.) Then along came the upheaval of May 1968, a time of massive protests that started with university students and spread out from there.

(1968 was a watershed year in a number of countries around the world, including the United States. There's a very good book on it all: Mark Kurlansky's 1968: The Year that Rocked the World [2004]. The France chapter begins on page 209.)

(Okay, I can't resist. One of the lead protesters was Daniel Cohn-Bendit. Known as Dany the Red, he once said, "Je suis Marxiste tendance Groucho," or roughly, "I am a Marxist of the Groucho persuasion.")

At any rate, a main result of the events of 1968 in France was that the minimum wage, long stagnant, took off like a rocket. Between 1968 and 1983 it increased by more than 130 percent. (P. 289.)

Around 1980, the winds of politics changed. Margaret Thatcher became prime minister of Great Britain in 1979; Ronald Reagan was elected president of the United States in 1980; and shortly thereafter Gordon Gekko declared that "Greed is good." As opposed to being one of the seven deadly sins.

In France, the Socialists had returned to power in 1981, but the winds were too strong for them, and in 1982-1983 the government took a "turn toward austerity." Says Piketty, "The break was as sharp as that of 1968, but in the other direction." The minimum wage did continue to increase, but at a relatively low rate. (Pp. 289-290, 308-309.)

If you graph all this, the curve is flat until 1968, sharply up until the early 1980s, and then moderately up until the present.

Meanwhile, what's going on in the United States? The minimum wage got started in the 1930's and increased steadily until its peak in 1969, Richard Nixon's first year as president. Since then it has not kept up with inflation, although there have been occasional upward bumps. (P. 309.)

As Piketty puts it, "The United States used the minimum wage to increase lower-end wages in the 1950s and 1960s but abandoned this tool in the 1970s. In France, it was exactly the opposite: the minimum wage was frozen in the 1950s and 1960s but was used much more often in the 1970s. Figure 9.1 illustrates this striking contrast." (P. 310.)

Figure 9.1 is on page 309 of the book, but it is also in the online Technical Appendix; you can look at it by clicking here.

So what should we make of all this? Here's Piketty's rather professorial take: "To an even greater extent than other markets, the labor market is not a mathematical abstraction whose workings are entirely determined by natural and immutable mechanisms .... labor market regulations depend on each society's perceptions and norms of social justice and are intimately related to each country's social, political, and cultural history." (Pp. 308, 310.)

I am now going to, very freely, translate Mr. Piketty: Within certain broad limits, the minimum wage is not about economics; it is about politics. Fight for $15!