The Federal Minimum Wage and Average Hourly Earnings of Manufacturing Production Workers

The Federal Minimum Wage and Average Hourly Earnings of Manufacturing Production Workers

Order Code 98-960 E
Updated May 20, 2003
CRS Report for Congress
Received through the CRS Web
The Federal Minimum Wage and
Average Hourly Earnings of
Manufacturing Production Workers
William G. Whittaker
Specialist in Labor Economics
Domestic Social Policy Division
Summary
The federal minimum wage, under the Fair Labor Standards Act (FLSA) of 1938,
as amended, is fixed in statute and remains at the statutory level until the Congress,
through new legislation, alters it. Each successive round of minimum wage increases
(in 1949, 1955, 1961, 1966, 1974, 1977, 1989, and 1996) has been debated extensively
and, very often, intensely.
In part because of divergent views about the minimum wage — concerning both
the appropriateness of having a legislated wage floor and, secondarily, the level at which
it ought to be set — long periods have sometimes elapsed between minimum wage
enactments. As a result, the market value of the minimum wage has fluctuated widely
and, with it, the protection afforded workers.
Questions are often asked: How does the minimum wage compare with the
average hourly earnings of production workers in manufacturing industries (AHE-M)?
Has there been a consistent relationship between the two through the years? Should that
relationship be fixed by indexing or pegging the federal minimum wage to a percentage
of the AHE-M?
See also CRS Report RS20040, Inflation and the Real Minimum Wage: A Fact
Sheet; and CRS Report RL30927, The Federal Minimum Wage: The Issue of
Indexation.
An Orderly Approach to the Minimum Wage?
Some have suggested that a more consistent (systematic) approach should be found
for effecting increases in the minimum wage. One option, sometimes discussed, would
be to index (or peg) the minimum wage to an independent economic variable. Such an
arrangement could allow for regular changes in the wage floor in tandem with the general
economy.
With respect to indexation (as with the minimum wage per se), opinion varies
widely. Some argue that Congress shouldn’t establish a minimum wage at all, regardless
Congressional Research Service ˜ The Library of Congress

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of the method: that a legislated minimum has adverse economic effects and that the free
market ought to be relied upon. Others, though supportive of a minimum wage, hold that
indexation is unwise: that it would result in wage rate increases at inappropriate times
and could prove to be an uncontrolled engine of inflation. Still others suggest that the
need to raise the minimum wage provides an occasion for review of the Act’s non-wage
provisions: overtime pay requirements, restrictions on child labor, control of industrial
homework, etc. If change became automatic through indexation, they suggest, oversight
of other aspects of wage/hour regulation might be neglected.
Proponents of indexation see a number of advantages to that arrangement. It would
insure, they suggest, that the income of the minimum wage worker (normally neither
represented by a trade union nor working under a collectively bargained agreement) would
not be allowed to decline to what proponents view as “intolerable” levels due to
legislative inaction. Further, they have argued that systematic updating of the wage floor
would provide industry with a surer foundation upon which to rest individual wage
structures. Firms would be able to plan ahead, knowing that at fixed intervals the base
wage rate for covered workers would be changed in keeping with trends in the economy
at large. Thus, long periods of wage erosion followed by legislated efforts to catch up
could be avoided.
Among proponents of indexation, there appears to be some disagreement as to the
choice of an independent economic variable to which changes in the wage floor should
be anchored. Some have urged use of the Consumer Price Index (CPI). Others have
pointed to the Employment Cost Index (ECI). Still others have urged that the minimum
wage be pegged to a percentage of the average hourly earnings of production workers in
manufacturing. The utility of each of these options would be stoutly argued, pro and con,
were it actually to emerge in legislation.
Congress last actively considered indexation of the federal minimum wage in the
context of the 1977 FLSA amendments.1 While it did not endorse the concept, it created
a federal Minimum Wage Study Commission and instructed that body to explore, among
other wage/hour issues, the implications of indexation of the wage floor.
After 3 years of research and analysis, the Commission concluded that “the present
system has not maintained the purchasing power of the minimum wage,” that “indexation
is not necessarily inflationary” if properly calculated, and that indexation “would have a
small beneficial effect on the economy in the long run.” Its immediate impact, the
Commission suggested, though small, could be either beneficial or harmful “depending
upon underlying economic conditions.” The Commission recommended that the
minimum wage “be indexed on the basis of average hourly earnings in the private
economy.” It further recommended that Congress confer with the Bureau of Labor
Statistics (BLS) “to devise a suitable index that incorporates both average hourly earnings
in the private nonfarm business sector and in the farm sector.”2
1 CRS Report 78-171, The Fair Labor Standards Act Amendments of 1977 (P.L. 95-151):
Discussion with Historical Background, by Charles V. Ciccone and William G. Whittaker.
2 U.S. Minimum Wage Study Commission. Report of the Minimum Wage Study Commission.
Washington, U.S. Govt. Print. Off., 1981. vol. I, p. 83-84. (Hereafter cited as MWSC, Report
(continued...)

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A dissenting judgment by Commissioner S. Warne Robinson, Chairman of the Board
of the G. C. Murphy Company, declared indexation to be “A Prescription for Disaster”
and termed the Commission’s indexation proposal its “most far-reaching and least
supportable” recommendation. Robinson argued that indexation “is by nature
inflationary.” He was critical of the minimum wage per se, branding it “an extremely
poor and even counter-productive device for redistributing income.” He stated that
indexation would have a “devastating impact ... on particular industries such as retail and
service trades.”3
When the Commission issued its report in 1981, an increase in the federal minimum
wage was no longer an agenda item. Indeed, no further increases in the federal wage floor
were legislated until 1989.4
One Instrument of Indexation — Among Many
Among those who favor indexation of the minimum wage, one device often
proposed is the pegging of the wage floor to a percentage of the average hourly earnings
of production workers in manufacturing industries (AHE-M).5 Data on the AHE-M are
available beginning from 1941 — about 2 years after enactment of the federal minimum
wage law.6
Table 1 examines the relationship between the federal minimum wage and the
average hourly earnings variable. The minimum wage as a percentage of AHE-M reached
its lowest level in 1949 (29.9%). When the newly legislated increase took place in
January 1950, the percentage jumped to 54% of the AHE-M. Through the next 3 decades,
2 (...continued)
of the Minimum Wage Study Commission).
3 Ibid., v. 1, p. 202-205.
4 The Report of the Minimum Wage Study Commission, in seven volumes, is available from the
general collection of the Library of Congress. Indexation is discussed in vol. I, pages 71-84 and
202-206, and in vol. VI, pages 145-169.
5 In 1975 (the 94th Congress), Representative John Dent (D-Pa.) proposed indexing the minimum
wage to the CPI. Hearings on the issue were conducted but no new legislation was adopted. In
1977, Mr. Dent introduced legislation to index the minimum wage to 55% — and, after 1 year,
to 60% — of the AHE-M. Other similar proposals have followed, several during recent years,
with variations in the proposed indexation formula. In the 104th Congress, Senator Paul
Wellstone (D-Minn.) proposed indexation of the minimum wage at 45% of average hourly
earnings of nonfarm, nonsupervisory private sector workers for the preceding 12 months (S.
1722). In the 105th Congress, indexation was proposed by Representatives Bernard Sanders (I-
Vt., H.R. 2278) and David Bonior (D-Mich., H.R. 3100). In the 106th Congress, indexation
legislation was introduced by Representatives Sanders (H.R. 627) and Jack Quinn (R-N.Y., H.R.
964). In the 107th Congress, Representative Sanders has introduced H.R. 2812, the “Minimum
Wage Restoration Act,” which would raise the minimum wage (to $8.15 per hour after January
1, 2003) and index it to changes in the cost of living.
6 Through the years, there have been fluctuations in the percentage of workers engaged in
manufacturing and, as well, changes in the nature of manufacturing work. Some might argue that
a segment of the workforce, other than manufacturing, might be more appropriate for indexation
purposes.

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it never fell below 40%. In 1968, following an increase mandated by the 1966 FLSA
amendments, it reached its highest level at 55.6%. From 1983 through 1996, the
minimum wage remained at less than 40% of the AHE-M, reaching a new low for the
period at 33.4% in 1989. The 1989 amendments restored the comparative ratio to the
upper 30% level but, by 1995, it had dropped back to 36.2%. Congress again raised the
minimum wage: to $4.75 per hour in 1996 (39.2% of the AHE-M), and to $5.15 per hour
in 1997 (41.4% of the AHE-M). With no further legislated increases in the minimum
wage, the ratio had dropped to 35.4% in 2002.
Increases in the minimum wage have taken effect at irregular times within calendar
years. Here, the minimum wage has been counted at its highest level at any time during
each year. For example, in October 1939, the federal minimum wage was raised from 25
cents per hour to 30 cents per hour. Thus, we used 25 cents per hour for 1938; 30 cents
for 1939, with a similar practice for other years during which changes occurred. (Table
2 shows the mandated step increases in the federal minimum wage.)
Some states adopted minimum wage statutes prior to enactment of the federal FLSA.
In early 2003, some 11 states and the District of Columbia had standards higher than the
federal requirement. Oregon and Washington State have indexed their state minimum
wage rates. Where state and federal standards overlap, creating dual coverage, the higher
standard normally prevails.
Table 1. The Relationship of the Federal Minimum Wage to
Average Hourly Earnings of Production Workers
in Manufacturing Industries, 1941–2000
Avg. hourly
Min. wage as a % of avg.
Year
Minimum wagea
mfg. earningsb
hourly mfg. earnings
1938
0.25
n/a
—
1939
0.30
n/a
—
1940
0.30
n/a
—
1941
0.30
0.69
43.5
1942
0.30
0.79
38.0
1943
0.30
0.88
34.1
1944
0.30
0.93
32.3
1945
0.40
0.95
42.1
1946
0.40
1.03
38.8
1947
0.40
1.18
33.9
1948
0.40
1.29
31.0
1949
0.40
1.34
29.9
1950
0.75
1.39
54.0
1951
0.75
1.51
49.7
1952
0.75
1.59
47.2
1953
0.75
1.68
44.6
1954
0.75
1.73
43.4
1955
0.75
1.79
41.9
1956
1.00
1.89
52.9
1957
1.00
1.98
50.5

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Avg. hourly
Min. wage as a % of avg.
Year
Minimum wagea
mfg. earningsb
hourly mfg. earnings
1958
1.00
2.05
48.8
1959
1.00
2.12
47.2
1960
1.00
2.19
45.7
1961
1.15
2.25
51.1
1962
1.15
2.31
49.8
1963
1.25
2.37
52.7
1964
1.25
2.43
51.4
1965
1.25
2.50
50.0
1966
1.25
2.59
48.3
1967
1.40
2.71
51.7
1968
1.60
2.88
55.6
1969
1.60
3.05
52.5
1970
1.60
3.23
49.5
1971
1.60
3.45
46.4
1972
1.60
3.66
43.7
1973
1.60
3.91
40.9
1974
2.00
4.25
47.1
1975
2.10
4.67
45.0
1976
2.30
5.02
45.8
1977
2.30
5.44
42.3
1978
2.65
5.91
44.8
1979
2.90
6.43
45.1
1980
3.10
7.02
44.2
1981
3.35
7.72
43.4
1982
3.35
8.25
40.6
1983
3.35
8.52
39.3
1984
3.35
8.82
38.0
1985
3.35
9.16
36.6
1986
3.35
9.34
35.9
1987
3.35
9.48
35.3
1988
3.35
9.73
34.4
1989
3.35
10.02
33.4
1990
3.80
10.37
36.6
1991
4.25
10.71
39.7
1992
4.25
10.95
38.8
1993
4.25
11.18
38.0
1994
4.25
11.43
37.2
1995
4.25
11.74
36.2
1996
4.75
12.12
39.2
1997
5.15
12.45
41.4
1998
5.15
12.79
40.3
1999
5.15
13.17
39.1
2000
5.15
13.62
37.8
2001
5.15
14.15
36.4
2003
5.15
14.56
35.4

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Source: Calculated by CRS based upon earnings data of the U.S. Bureau of Labor Statistics.
a The federal minimum wage under the Fair Labor Standards Act of 1938, as amended. It is counted at its
highest level at any time during each calendar year.
b Average hourly earnings cover production workers in manufacturing industries. The series excludes
overtime pay.
n/a = not available.
Table 2. Federal Legislation Setting Minimum Wage Rates,
1938!2001
Public law
Effective date
Rate
P.L. 75!718
October 1938
$0.25
(Enacted June 25, 1938)
October 1939
0.30
October 1945
0.40
P.L. 81!393
January 1950
0.75
(Enacted October 26, 1949)
P.L. 84!381
March 1956
1.00
(Enacted August 12, 1955)
P.L. 87!30
September 1961
1.15
(Enacted May 5, 1961)
September 1963
1.25
P.L. 89!601
February 1967
1.40
(Enacted September 23, 1966)
February 1968
1.60
P.L. 93!259
May 1974
2.00
(Enacted April 8, 1974)
January 1975
2.10
January 1976
2.30
P.L. 95!151
January 1978
2.65
(Enacted November 1, 1977)
January 1979
2.90
January 1980
3.10
January 1981
3.35
P.L. 101!157
April 1990
3.80
(Enacted November 17, 1989)
April 1991
4.25
P.L.104-188
October 1996
4.75
(Enacted August 20, 1996)
September 1997
5.15
Source: Created by CRS.