



























John Villa


 
 

 
 
Bellarmine Law Society Review 

 
Volume XV | Issue I       Article IV 

 
 
 
An Analysis of the Legal History and Economic Impact of Federal Minimum 
Wage Policy in the United States 

John Villa 
Boston College, villaj@bc.edu 
 
 

 

 

 

 

 



 

AN ANALYSIS OF THE LEGAL HISTORY AND ECONOMIC IMPACT OF FEDERAL 
MINIMUM WAGE POLICY IN THE UNITED STATES 

 

JOHN VILLA 1 

 

Abstract: This paper examines the evolution of the political and economic 
dynamics behind federal minimum wage policy by describing its history in detail. 
From judicial decisions about the role of the federal government in wage 
regulation, to the expansive policies of the New Deal Era, to the Reagan era's 
rejection of such a vast role of the federal government, the history of federal 
minimum wage policy is far from linear. Evolving political dynamics, 
jurisprudence, and economic theories have prevented a clear opinion on the 
legitimacy of a federal minimum wage from emerging. Today, advocates for free 
market purity dominate the federal government's approach to wage regulation, 
with meager increases - or no increases at all - becoming commonplace for 
Congress. As the paper demonstrates, the wage of $7.25 an hour is no longer able 
to ensure a decent quality of life for Americans. Its proposal to slowly raise the 
wage to $17 is complemented by two tax credits aimed at minimizing the 
increased labor costs that small businesses will face, while also recognizing the 
need for increased buying and saving power for low-wage Americans. 

 

Problem 

 Federal minimum wage policy impacts a more significant portion of the economy than is 

commonly understood. Today, most Americans support a strong minimum wage and increasing 

wages for the poorest Americans, but assume that the minimum wage concerns only the lowest 

earners in select industries. This reduces the conversation to a matter of principle rather than of 

practical urgency. And when facing the legitimate possibility of an increase to the minimum 

wage, both policymakers and the average American are either apathetic or outright antagonistic. 

When translated to policy, concerns about potential negative impacts on the wealthy often 

1 Jack Villa is a graduating senior studying Political Science with minors in Philosophy & Religion in American 
Public Life. He is interested in American public policy with a particular focus on clean energy investment, labor 
regulation, and health care reform. He will spend his next year in Detroit, serving as a Jesuit Volunteer at United 
Community Housing Coalition and representing tenants in eviction cases. After his time in Detroit, he intends to 
return to his hometown in northern Virginia to work in DC while preparing for law school. 

85 



 

outweigh the benefits of increased economic mobility for low-wage service workers. Business 

owners feel threatened by the possibility of losing bargaining power and having to dedicate more 

of their budget to their workers. Consumers feel uneasy at the prospect of increased wages 

translating into increased prices for essential items. This spirit of distaste has largely dominated 

the discussion of minimum wage policy in the United States in the 21st century. 

 The impacts of minimum wage policy and potential increases of the minimum wage 

affect the entire economy, not just the lowest earners. Workers making just above federal or state 

minimum wage would likely see their wages increase with  minimum wage increases due to a 

“ripple effect.”2 And despite the common belief that minimum wage workers are mostly 

teenagers from financially secure families, an analysis by Arin Dube, economist at the University 

of Massachusetts at Amherst, revealed that only about 25% of those earning the federal 

minimum wage — and just 12% of those earning $10 an hour or less — are actually teenagers.3 

That means that tens of millions of working adults will have more money to spend, returning it 

back into the economy, and to save, allowing them to eventually afford to buy a house and retire. 

 Evidence suggests that an increase in purchasing and saving power for America’s poorest 

workers is overdue. The minimum wage has not kept pace with the rising cost of living caused 

by inflation. The federal minimum wage of $7.25 an hour has not changed since 2009 despite 

higher costs of living. According to Ben Zipperer at the Economic Policy Institute, the 2021 

minimum wage was worth 21% less than it was in 2009.4 An individual who worked 40 hours a 

week, every week, and earned the federal minimum wage made $20 more than the federal 

4 Ben Zipperer, “The Minimum Wage Has Lost 21% of Its Value since Congress Last Raised the Wage.” July 22, 
2021. Economic Policy Institute. 2021. Link. 

3 Harris & Kearney,  “The ‘Ripple Effect’ of a Minimum Wage Increase on American Workers.” 

2 Ben Harris and Melissa S. Kearney. “The ‘Ripple Effect’ of a Minimum Wage Increase on American Workers.” 
Brookings. January 10, 2014. 
https://www.brookings.edu/articles/the-ripple-effect-of-a-minimum-wage-increase-on-american-workers/. 

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government’s annual poverty line.5 When factoring in the increasing cost of living, the 

unsustainable expectation of working 40 hours a week every week, and unexpected expenses like 

medical emergencies, minimum and low-wage workers are struggling to keep themselves out of 

poverty. As a result, intergenerational economic mobility has fallen (as shown in Figure 1), 

meaning American workers are becoming less likely to make more money than their parents. 

 
Figure One: Rates of mobility by birth year (1940-1985)6 
 

Though the benefits to workers are both valid and impactful, so is the rise in production 

costs that deeply concerns business owners. When analyzing a potential increase from $8 to $15, 

Professor Thomas Winberry of the Wharton School of Business at the University of 

Pennsylvania found that while short-term effects on workers are positive, eventually firms either 

reduce their number of workers or suffer from increased production costs.7 This puts the 

employer in a difficult position and, according to Winberry, will likely harm the worker whom 

the increase was hoped to benefit. He believes that “the minimum wage is too blunt a 

redistributive instrument to support the labor income of workers earning the lowest wages” and 

7 Shankar Parameshwaran. “Why Raising the Minimum Wage Has Short-Term Benefits but Long-Term Costs.” 
Knowledge at Wharton. June 20, 2023. Link. 

6 Raj Chetty. “Measuring Intergenerational Mobility” Opportunity Insights. 2018. https://opportunityinsights.org/ 

5 Bonitatibus, Steve. “The Minimum Wage Is a Poverty Wage.” Center for American Progress. July 24, 2024. 
https://www.americanprogress.org/article/the-minimum-wage-is-a-poverty-wage/. 

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https://opportunityinsights.org/
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that tax reform and direct-transfer programs are much more effective at benefiting these 

workers.8 

The price increases that follow from the rise in production costs, referred to as the 

“pass-through effect” of wage increases, are another concern for both producers and consumers. 

In the month following an increase to the minimum wage, prices often increase and then stabilize 

as the market re-adjusts. This increase in elasticity of prices relative to small minimum wage 

changes is 0.036, which is almost half of the 0.07 increase in elasticity that has been commonly 

accepted in earlier literature.9 This change, though unlikely to significantly disrupt consumer 

spending and contribute to inflation in the long term, remains a factor in the discussion of 

minimum wage increases due to the increased economic costs perceived by consumers. Both 

Zipperer and Winberry conclude that while a small increase to the minimum wage has a 

negligible impact on production costs and employment, a large increase is likely to result in 

either increases in production costs or a shrinking of the workforce.10  

While opinions vary on how to address minimum wage policy, it is clear that such 

increases have economic impacts that reach far beyond just those who receive such wage 

increases. Minimum wage policy establishes the framework within which employers and 

workers structure modes of production, define work conditions, and strive to remain competitive. 

Its complex legal history, effects on the overall economy, and ideology informing the role of 

government in regulating the free market must be acknowledged by any attempt at reform to the 

federal minimum wage. 

 

10 Macdonald & Nilsson, “The Effects of Increasing the Minimum Wage on Prices: Analyzing the Incidence of 
Policy Design and Context.” 

9 Daniel Macdonald, Erik Nilsson. “The Effects of Increasing the Minimum Wage on Prices: Analyzing the 
Incidence of Policy Design and Context.” The Political Economy Research Institute at The University of 
Massachusetts Amherst. 2016. https://doi.org/10.7275/28277246. 

8 Parameshwaran. “Why Raising the Minimum Wage Has Short-Term Benefits but Long-Term Costs.” 

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https://doi.org/10.7275/28277246


 

Legal History 
  

The legal history of the American minimum wage begins at the state level, with 

Massachusetts passing the first such law in 1912. The law did not impose an actual minimum 

wage, but instead established regulatory boards which set a minimum wage for female workers 

based on the cost of living.11 Women were the initial focus due to their limited bargaining power, 

frequent underpayment, and employment in exploitative industries like textile manufacturing. 

Within a year, eight additional states adopted similar legislation, empowering regulatory boards 

and protecting female laborers. In 1914, Oregon became the first state to implement an actual 

minimum wage, setting it at $8.25 per week for women. This law was challenged in 1917 in 

Stettler v. O’Hara, where opponents argued it constituted an overreach of the state’s “police 

power,” its authority to regulate for public welfare. The district court upheld the law, and in a 4–4 

decision, the Supreme Court stayed the ruling of the district court, affirming the constitutionality 

of minimum wage legislation and recognizing it as a legitimate exercise of state police power. 

 However,  in 1923, the government’s newfound authority to impose a minimum wage 

came under threat. Adkins v. Children’s Hospital of D.C. was filed in response to a 1918 law 

passed by Congress (which then governed D.C.) that guaranteed a minimum wage to women and 

children working in D.C.12 The Children’s Hospital of D.C., which employed many women, 

sought an injunction against this law, which was denied by the trial court then granted by the 

appellate court. The case reached the U.S. Supreme Court, which ruled for the Hospital on the 

basis that the Due Process Clause of the Fifth Amendment guaranteed the right to “freedom of 

contract.” The holding was inspired by the 1905 ruling of Lochner v. New York, in which the 

12 "Adkins v. Children's Hospital of D. C." Oyez. Link. 

11 Clifford F. Thies. “The First Minimum Wage Laws.” Cato Journal Vol. 10, No. 3 (Winter 1991). Cato Institute. 
https://www.cato.org/sites/cato.org/files/serials/files/cato-journal/1991/1/cj10n3-7.pdf 

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ability of the state to limit a baker’s working hours was deemed unconstitutional under the same 

statute. According to the majority, the government-mandated minimum wage impaired the ability 

of employer and employee to freely agree to a contract.13 Though the Court recognized the 

legitimacy of Congress to impose regulations “suitable to protect health and safety and designed 

to insure wholesome conditions of work and freedom from oppression,” a minimum wage did 

not fall within this authority.14 This ruling contradicted the precedent established by Stettler and 

enshrined the “freedom of contract” from Lochner as the rationale by which minimum wage 

mandates were deemed to be beyond the government’s policing power. 

 A decade later, the Franklin D. Roosevelt administration ushered in an unprecedented 

series of legislation and judicial decisions that transformed the federal government’s role in 

regulating labor and wages. In response to the Great Depression, President Franklin D. 

Roosevelt’s New Deal Coalition passed major pieces of legislation to revitalize the economy 

through worker-focused reform. Laws like the National Industrial Recovery Act of 1933 and the 

National Labor Relations Act of 1935 established laws and regulations to protect workers from 

industrial collusion and malpractice and give workers the right to unionize and collectively 

bargain. Roosevelt strongly believed that the well-being of the worker was within the federal 

government’s policing power and necessary to reconstruct the failing American economy.  

 The 1937 case of West Coast Hotel Co. v. Parrish was the key in affirming the federal 

government’s role in wage regulation. The case concerned Elsie Parrish, who worked for the 

West Coast Hotel Company and, according to Washington state law, was entitled to $14.50 for 

each work week of 48 hours. Parrish was receiving less than this amount and sued in order to be 

paid her lost earnings.15 The lower court ruled against her, using Adkins as justification, and upon 

15  "West Coast Hotel Company v. Parrish." Oyez. Link. 
14 “Liberty of Contract and Lochner v. New York.” Constitution Annotated - Library of Congress. Link. 
13 "Adkins v. Children's Hospital of D. C." Oyez. 

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appeal, the case made its way to the Supreme Court. Justice Owen Josephus Roberts, recognizing 

the achievements and moral conviction of Roosevelt and his New Deal Coalition, felt compelled 

to shift his stance on the Lochner precedent. Going against his history of conservative decisions, 

Roberts changed sides and voted for Parrish.16 In a 5-4 ruling, the majority ruled that the 

“freedom of contract” within the Due Process Clause only called for the state of Washington to 

comply with due process in the process and enforcement of the contract and did not rule out 

reasonable regulation of business.17 Due process was followed in their enforcement of $14.50 a 

week, and thus, Washington’s minimum wage mandate was deemed reasonable, and West Coast 

Hotel Co. was mandated to pay Parrish her lost wages. Government at all levels was finally able 

to use its policing power to regulate business and enact protections for workers.  

Finally free from the restraints of the Lochner era, the New Deal Coalition passed the 

Fair Labor Standards Act (FLSA) in 1938. The FLSA established standards for overtime pay,  

limited child labor, instituted a standard work week of 44 hours, and established a federal 

minimum wage of $0.25 an hour.18 States were free to establish their own minimum wages, 

provided that they were above this value. The vast majority of the country’s workers were 

covered by the FLSA, but white-collar workers and workers covered by collective bargaining 

protections (at the request of union leaders) were exempt from the initial FLSA. Justified by the 

Commerce Clause in Article One of the Constitution, the FLSA prohibits the “shipping goods in 

interstate commerce that were manufactured by workmen whose employment did not comply 

with prescribed wages and hours.”19 This language and the FLSA are still the foundation of 

federal wage regulation. Its importance in the evolution of minimum wage policy cannot be 

19 The Fair Labor Standards Act of 1938, ch. 676, 52 Stat. 1060 et seq. 
18 “The Fair Labor Standards Act (FLSA): An Overview.” Congress.gov. Link. 
17  "West Coast Hotel Company v. Parrish." Oyez. Link. 
16 "West Coast Hotel Company v. Parrish." Oyez. Link. 

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understated; it gives nearly all workers the right to make claims on their employers for fair wages 

and has been the basis upon which fights for expanded rights have been grounded. 

Major updates to federal minimum wage policy since the passage of the FLSA have 

largely come through amendments to the original law and appeals against them. Throughout 

World War II and the post-war economic boom that followed, few political or judicial fights 

disrupted the continued and substantive increase in the minimum wage. In addition to these 

increases, amendments to the FLSA have expanded its reach to include workers in previously 

neglected sectors, such as the retail and service industries, and the previously exempt union jobs. 

Maryland v. Wirtz was the first notable resistance to such expansions. Maryland, along 

with 27 other states, sued Secretary of Labor W. Willard Wirtz over a 1961 amendment that 

removed state governments, their political subdivisions, and schools and hospitals run by state 

and local governments from the list of exempt enterprises.20 The states argued that this expansion 

violated the Commerce Clause and interfered with the states’ sovereign immunity, as established 

by the Eleventh Amendment. A district court upheld the expansion of the FLSA, finding that the 

newly included commercial enterprises and state institutions fell within Congress’s authority 

under the Commerce Clause, but declined to address the claim of interference with states’ 

sovereign immunity. Maryland appealed directly to the Supreme Court, which sided with the 

district court’s finding regarding the Commerce Clause.21 The Court reasoned that the exempted 

status for these commercial enterprises was necessary to prevent the abuse of substandard wages 

and working conditions for the sake of a competitive advantage. The Court also rejected the 

states’ argument that their sovereign immunity was violated by arguing that the states maintained 

their sovereignty insofar as they were allowed to perform medical and educational functions as 

21 Raasch. “Constitutional Law Review: Fair Labor Standards Act: Maryland v. Wirtz.” 

20 E. John Raasch. “Constitutional Law Review: Fair Labor Standards Act: Maryland v. Wirtz.” Marquette Law 
Review Vol. 52, Issue 4 (Winter 1969). Link. 

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they pleased. The federal government was simply requiring the states to treat the workers 

executing these functions the same as other employers whose activities similarly affect 

commerce.22 

A similar case emerged in response to the 1974 FLSA expansions aimed at regulating 

minimum wage and overtime pay for state and local government workers, this time claiming a 

violation of the states’ Tenth Amendment rights. In National League of Cities v. Usery, the 

Supreme Court actually ruled on behalf of the National League of Cities, holding that Congress’ 

expansion of the FLSA did violate the states' “freedom to structure integral operations in areas of 

traditional government functions.”23 But in the 1985 case of Garcia v. San Antonio Metro. Transit 

Authority, the Court overturned this limitation to the FLSA, arguing that the language used to 

justify the ruling was too vague in its protection of state sovereignty and thus unworkable.24 

Following the challenges in the Maryland and Usery cases, no major obstacles have 

impeded the implementation of the federal minimum wage policy. Nonetheless, Congress has 

failed to continue making material increases in the federal minimum wage. Though raises 

continued, they were fewer and less substantial than in previous decades. Without a mechanism 

to automatically adjust the federal minimum wage to inflation, the lack of attention to this issue 

in Congress has led to stagnated wages despite rising costs.25 The last increase to $7.25 an hour 

was finalized in 2009, and in the 16 years since, many people have strongly advocated for an 

increase. Thirty-four states, territories, and districts have implemented minimum wages above 

$7.25 in response to federal inaction. Though the Raise the Wage Act, which envisions an 

25 Payne-Patterson, Maye, & Zipperer. “A History of the Federal Minimum Wage.” 
24 "Garcia v. San Antonio Metro. Transit Authority." Oyez. Accessed May 2, 2025. Link. 
23 "National League of Cities v. Usery." Oyez. https://www.oyez.org/cases/1974/74-878. 
22 Raasch. “Constitutional Law Review: Fair Labor Standards Act: Maryland v. Wirtz.” 

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increase to $15 an hour, has been proposed in the House in 2019, 2021, 2023, and 2025 and even 

passed the House in 2019, it has failed to pass both chambers of Congress.26 

Analysis 
 At its core, the initial debate over government-mandated minimum wages concerned the 

scope of government and its role in economic affairs. The “freedom of contract” principle that 

defined the Lochner era was consistent with the libertarian, laissez-faire style of governance 

toward economic activity. The Lochner case established the precedent that any regulation of the 

affairs between employers and workers was a violation of “economic substantive due process” 

and therefore unconstitutional.27 The “substantive due process” jurisprudence has aged poorly 

and is seen as having allowed the Supreme Court to use the Due Process Clause to protect 

unenumerated rights and effectively legislate from the bench.28 The “freedom of contract” was 

never explicitly guaranteed in the Constitution, yet the small-government approach to economic 

regulation that controlled the Supreme Court effectively guaranteed it as such.29 Without a firm 

constitutional basis, the Court kept the scope of government policing power in regards to labor 

regulation narrow at all levels, invalidating any legislation that went beyond guaranteeing the 

health and safety of workers.30 Case law in the following decades would continually affirm this 

narrow scope and the validity of “substantive due process” jurisprudence.31 

 The Progressive Era and the Women’s Suffrage Movement played the biggest role in 

advocating for government involvement in determining minimum wages for workers prior to the 

New Deal Era. In many cases, the fight for state and federal minimum wage laws came as a 

31 Margaret Murphy. “The Constitutionality of Minimum Wage: The Legal Battles of Elsie Parrish and Frances 
Perkins for a Fair Day’s Pay.” Princeton Historical Review. 2023. Link. 

30 “Liberty of Contract and Lochner v. New York.” Constitution Annotated - Library of Congress. Link. 
29 Chapman & Yoshino. “Interpretation: The Fourteenth Amendment - Due Process Clause.” 
28 Chapman & Yoshino. “Interpretation: The Fourteenth Amendment - Due Process Clause.” 

27 Nathan S. Chapman & Kenji Yoshino. “Interpretation: The Fourteenth Amendment - Due Process Clause.” 2015. 
National Constitution Center. 2015. Link. 

26 Payne-Patterson, Maye, & Zipperer. “A History of the Federal Minimum Wage.” 

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result of persistent Suffragette advocacy and Progressive politicians.32 The early minimum wage 

laws of the 1910s-1920s that survived in spite of Lochner did so because the women they applied 

to were seen as weak and in need of protection. While the laws were helpful, the paternalistic 

intent behind them not only validated the socially-constructed dependency of women on men but 

characterized all minimum wage policy as for those deserving of assistance rather than for those 

deserving of fair compensation. Recognizing the fragility of the Lochner precedent, the need for 

sufficient worker protections, and the paternalistic intent behind existing minimum wage laws, 

Progressives and Suffragettes sought to correct the perceived imbalance between the defense of 

the rights of businesses and the defense of the rights of workers. In their view, the “freedom of 

contract” was inherently unequal, favoring business owners and leaving workers with little 

bargaining power. Taking from then-Justice Louis Brandeis, who had argued in favor of the 

minimum wage law in the 1917 Stettler case, the Progressives and Suffragettes adopted the 

rationale that minimum wage laws were in the legitimate interest of the state because “socially, 

economically, and physically, the limitation of working hours was a good thing.”33 Their 

momentum continued with the ratification of the Nineteenth Amendment in 1920, but was stalled 

by the Adkins ruling in 1923. Despite this, Suffragettes and Progressives managed to reframe the 

conversation surrounding the minimum wage from a wage of condescension to a wage of merit. 

 The Great Depression required a radical change in governance. The laissez-faire 

economic system that caused mass unemployment, inflation, and distrust of economic 

institutions was under increased scrutiny. Many sought to change this by revitalizing the 

regulatory attitude advocated for by Progressives and Suffragettes. Chief among these advocates 

33 Murphy. “The Constitutionality of Minimum Wage: The Legal Battles of Elsie Parrish and Frances Perkins for a 
Fair Day’s Pay.” 

32 Murphy. “The Constitutionality of Minimum Wage: The Legal Battles of Elsie Parrish and Frances Perkins for a 
Fair Day’s Pay.” 

95 



 

was President Roosevelt’s Secretary of Labor, Frances Perkins. Perkins, a suffrage advocate, 

longtime close advisor to Roosevelt, and the first female cabinet member, was key in convincing 

Roosevelt that a federal minimum wage was needed to revitalize the American economy.34 

However, the Roosevelt administration needed to overcome the legal precedent that prohibited 

such expansions. Their wish was granted with the Parrish ruling, which was largely due to the 

success of the economic reforms he had passed during his first term and rumors of his future 

attempt to pack the Court with progressive Justices.35 With the Lochner precedent overturned, the 

Roosevelt administration was able to permanently enshrine a minimum wage within the federal 

government's policing power and embolden states to pass similar legislation. Within a year of 

Lochner’s reversal, the Fair Labor Standards Act was signed into law and marked the beginning 

of a new era for wage regulation. Though business leaders, such as the National Association for 

Manufacturers, decried a minimum wage as “a step in the direction of communism, bolshevism, 

fascism, and Nazism” and a direct attack on the economic flexibility of business owners, the 

economic boom that followed the FLSA’s passage silenced their criticisms for decades.36  

Led by Roosevelt and Secretary Perkins, the debate over the scope of government had 

been settled: it was now officially within the federal government’s policing power to impose a 

minimum wage for nearly all American workers. This expansion of federal authority was a 

rejection of the free market philosophy that had undergirded the federal government’s approach 

to labor regulation since the country’s inception.37 This rejection was an acknowledgement of the 

unfavorable conditions in which workers had to sell their labor and the necessity of a corrective 

force to rectify this imbalance. The devastation of the Great Depression had proved that the 

37 Otto Nathan. “Favorable Economic Implications of the Fair Labor Standards Act.” Law and Contemporary 
Problems 6 (3): 416-421. 1939. https://doi.org/10.2307/1189602. 

36 Peter Cole.“The Law That Changed the American Workplace.” TIME. June 24, 2016. Link. 
35 "West Coast Hotel Company v. Parrish." Oyez. Link. 

34 Murphy. “The Constitutionality of Minimum Wage: The Legal Battles of Elsie Parrish and Frances Perkins for a 
Fair Day’s Pay.” 

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system of free competition for labor was unable to salvage itself in times of economic crisis. The 

free market philosophy had been amended to a philosophy inspired by economist John Maynard 

Keynes, which gave the federal government the responsibility of regulating and rectifying the 

market at the margins in order to ensure consistent growth and a reliable workforce.38 

 With a Keynesian philosophy now guiding the federal government’s involvement in the 

labor market, the core legal issue shifted from one of the scope of government authority to one of 

delineation between federal and state authority. States viewed amendments that removed state 

and locally-run and funded institutions from the list of exempt employers as an attack on their 

ability to regulate their own economic affairs. In rejecting the states’ arguments that their Tenth 

Amendment, Eleventh Amendment, and Commerce Clause rights were violated, the Supreme 

Court kept with the trend of centralizing power that had captured nearly every aspect of 

governance. Like the economy as a whole, the impact of the commerce of state-funded hospitals, 

schools, and other facilities was rarely contained within state lines or negatively affected other 

commercial entities bound by the federal minimum wage.39 Thus, the competition between these 

state-funded commercial entities was no different than that of other commercial entities, and 

their activities were subject to federal law. 

 With the major issues concerning the scope and delineation of governmental policing 

power settled, the debate surrounding the minimum wage has shifted to a discussion of its 

limitations on economic freedom. In response to the stagflation of the 1970s and the recessions 

of 1961, 1970, and 1974 (as shown in Figure Two), many were growing skeptical of the ability 

of the federal minimum wage to coexist with consistently high economic growth and 

employment. President Ronald Reagan’s new-era conservative movement had the opportunity to 

39 Raasch. “Constitutional Law Review: Fair Labor Standards Act: Maryland v. Wirtz.” 
38 Nathan. “Favorable Economic Implications of the Fair Labor Standards Act.” 

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revitalize the movement against the minimum wage. It did so by focusing on the harm done to 

workers, not businesses, by the minimum wage and increases to it. 

 
Figure Two: Unemployment Rate from September 1959 to August 197540 
 

Using the insights of economists Milton Friedman, his wife Rose Friedman, and their 

1980 book Free to Choose, conservatives argued that fewer low-skill workers are hired when 

employers are forced to pay them above the market rate.41 This creates significant barriers to 

entry for the poorest and least skilled workers and prevents them from gaining the initial 

experience needed to start on the path of upward mobility.42 At a time when low-skill workers 

were being put out of work in favor of cheaper production costs overseas, this new argument 

against the minimum wage became incredibly popular.43 It made sense that the rapid increase in 

unemployment during the recessions of 1961, 1970, and 1974 and the stagflation of the 1970s 

was caused by artificially high production costs caused by an unfairly high minimum wage.44 

Republicans capitalized on this popularity, and the Friedmans’ views on the minimum wage 

became the dogma of Reagan’s revamped Republican Party. 

44 Graham.“From Reagan to Romney, a Brief History of Republican Thinking on the Minimum Wage.” 
43 Cole.“The Law That Changed the American Workplace.” 
42 Graham.“From Reagan to Romney, a Brief History of Republican Thinking on the Minimum Wage.” 

41 Jennifer Graham.“From Reagan to Romney, a Brief History of Republican Thinking on the Minimum Wage.” 
Deseret News. February 26, 2021. Link.  

40 U.S. Bureau of Labor Statistics, Unemployment Rate [UNRATE], retrieved from FRED, Federal Reserve Bank of 
St. Louis; https://fred.stlouisfed.org/series/UNRATE 

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Under Reagan, the federal government returned to viewing the minimum wage not as a 

tool for promoting economic mobility, but instead as an obstacle. The economic crises of the 

1960s and 1970s convinced the public and policymakers that the minimum wage and the 

increase in production costs it caused were to blame for the loss of domestic manufacturing jobs 

and increased unemployment. As a result, the free market approach that Roosevelt had stifled 

was reintroduced as the dominant approach to the labor market. Though unable to repeal the 

FLSA, Reagan’s Republican Party had effectively demonstrated the negative effects of 

increasing the minimum wage on the employment of low-skill Americans. Consequently, a 

minimum wage increase was not approved during the eight years of his administration. Under 

both Republican and Democratic Presidents since Reagan, the pace and value at which the 

federal minimum wage has been raised have decreased dramatically. As Table One shows, 

minimum wage increases have become less frequent since the Reagan era, and the size of those 

increases has also diminished.45 

Despite the enduring legacy of the Reagan administration’s sluggish approach to federal 

minimum wage policy, momentum for increasing the minimum wage has resurged in the 21st 

century. The failure of the current federal rate to keep pace with inflation and the rising cost of 

living has sparked concerns about 

economic mobility, wage stagnation, and 

justice for low-income workers. 

Compounding these pressures are the 

ongoing effects of globalization, which 

have continued to displace low-wage 

45 Payne-Patterson, Maye, & Zipperer. “A History of the Federal Minimum Wage.” 2025. Economic Policy Institute. 
2025. Link. 

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jobs and erode domestic labor standards. As a result, advocates now face a renewed, though still 

contested, opportunity to reassert the government’s role in ensuring fair wage standards through 

actively and substantially increasing the federal minimum wage. 

 Analysis of the central legal and economic issues in the discussion of the federal 

minimum wage illustrates the federal government’s conflict over the level of involvement that it 

ought to have in the labor market. The shifts from a laissez-faire market philosophy to Keynesian 

interventionism and back again occurred because of shifts in political leadership but, more 

importantly, in response to changing economic conditions. The Great Depression, postwar 

growth, stagflation, and neoliberal globalization have continually reshaped the perceived costs 

and benefits of wage regulation and the federal government’s response to them. Ultimately, the 

story of the minimum wage is a legal and political poll of how the federal government conceives 

of its responsibility to balance market freedom with economic stability. 

Policy Recommendations 

 
Figure Three: Real value of the federal minimum wage and real hourly wage of the typical worker compared with 
the value of the minimum wage had it grown at the rate of productivity, 1968–2014.46 
 

The minimum wage must be raised if policymakers hope to combat increasing economic 

inequality and decreasing social mobility. A wage of $7.25 an hour is outdated and fails to 

46 Lawrence Mishel, Elise Gould, & Josh Bivens.“Wage Stagnation in Nine Charts.” January 6, 2015. Economic 
Policy Institute. https://www.epi.org/publication/charting-wage-stagnation/. 

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accurately present the minimum income needed to avoid poverty. Figure Three shows how the 

real value of the minimum wage has failed to keep pace with productivity and how workers are 

not only undervalued, but also unable to climb the socioeconomic ladder at increasingly higher 

rates.47 To enhance the economic mobility of the American working class, Congress must end the 

longest period without a federal minimum wage increase in American history. 

To address the growing concerns of low-wage American workers, policymakers must 

introduce an amended version of the Raise the Wage Act that was proposed to the 119th 

Congress in April 2025. The Raise the Wage Act has changed throughout its several iterations; 

the most recent proposal of the Raise the Wage Act, H.R. 2743 in the House and S. 1332 in the 

Senate, is not only most reflective of the wage generated by the median levels of production 

shown in Figure Three, but also provides the most detailed description of how wages will 

change. The Act will raise the minimum wage in the FLSA to $17 an hour for non-tipped and 

tipped workers over the course of six and seven years, respectively.48 The Act also raises the 

minimum wage for underage workers and 14(c) workers – those with disabilities – to $16.50 and 

$15.50, respectively.49 Eventually, these subminimum wages will be phased out, and all workers 

covered by the FLSA will be paid $17 an hour.50 Once raised to the levels set forth in the Act, 

wages will be indexed to median wages annually to ensure that the wage of low-income 

Americans increases with rising costs, regardless of the salience of the matter in Congress. Table 

Two shows the rates at which these sets of wages will increase annually. 

50 Congress.gov. "Text - H.R.2743 - 119th Congress (2025-2026): Raise the Wage Act of 2025." Sec. 6 (a). April 8, 
2025. https://www.congress.gov/bill/119th-congress/house-bill/2743/text. 

49 Congress.gov. "Text - H.R.2743 - 119th Congress (2025-2026): Raise the Wage Act of 2025." Sec. 4 (a). April 8, 
2025. https://www.congress.gov/bill/119th-congress/house-bill/2743/text. 

48 Congress.gov. "Text - H.R.2743 - 119th Congress (2025-2026): Raise the Wage Act of 2025." Sec. 2 (a) & Sec 3 
(a). April 8, 2025. https://www.congress.gov/bill/119th-congress/house-bill/2743/text. 

47 Jimmy Narang, et al. “The Fading American Dream: Trends in Absolute Income Mobility since 1940.” 2017. 
CEPR. May 5, 2017. https://cepr.org/voxeu/columns/fading-american-dream-trends-absolute-income-mobility-1940. 

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https://www.congress.gov/bill/119th-congress/house-bill/2743/text
https://www.congress.gov/bill/119th-congress/house-bill/2743/text
https://cepr.org/voxeu/columns/fading-american-dream-trends-absolute-income-mobility-1940


 

 
Table Two: Scheduled minimum wage increases under the Raise the Wage Act of 202551 
 

According to analysis from the Economic Policy Institute, this act would increase the 

wages of over 22 million workers (15% of the American workforce), add $70 billion in wages 

annually, and increase the average worker’s income by $3,200.52 10.3 million minimum workers 

would be directly affected by this increase while nearly 12 million low but not minimum wage 

workers would see their wages rise as a result of the “ripple effect” of the wage floor being 

elevated.53 Among those most benefiting from this increase would be workers earning less than 

$25,000 (20.5% of total group positively affected), those earning between $25,000 and $50,000 

(21.6%), and those with a high school degree or less than a high school education (35.2% and 

17.2% respectively).54 The sectors with the most positively affected workforce are the retail trade 

sector (17.2%), the restaurant sector (19.5%), and the healthcare and social assistance sector 

(12.2%)55 

     

55 Zipperer, “The Impact of the Raise the Wage Act of 2025.” 
54 Zipperer, “The Impact of the Raise the Wage Act of 2025.” 
53Ben Harris and Melissa S. Kearney. “The ‘Ripple Effect’ of a Minimum Wage Increase on American Workers.” 
52 Zipperer, “The Impact of the Raise the Wage Act of 2025.” Economic Policy Institute. April 8, 2025. Link. 
51 “Raise the Wage Act Fact Sheet.” Democrats of the Committee on Education & the Workforce. Link. 

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https://democrats-edworkforce.house.gov/imo/media/doc/raise_the_wage_act_of_2025_fact_sheet.pdf


 

 
Table Three: Family income-to-poverty ratio of United States workers who would benefit if the  
federal minimum wage was raised to $17 by 203056 
 

Most importantly, however, is the Act’s impact on economic mobility for low-income 

workers. As Table Three shows, the Act most benefits workers earning just above the poverty 

line, but it least benefits workers currently below the poverty line. Such a substantial change to 

federal minimum wage policy must not result in the lowest-earning workers seeing the least 

direct benefits. To help generate a direct benefit for the lowest earners, the Work Opportunity 

Tax Credit (WOTC) will be expanded to cover more workers. The WOTC, available to 

employers of all sizes, credits employers who employ individuals from certain “targeted groups” 

that face significant barriers to employment.57 The process of the WOTC itself will not change, 

but a new targeted group – citizens earning under the poverty line as of their last tax filing – will 

be created to direct the positive benefits of the increased federal minimum wage towards 

Americans working to lift themselves out of poverty. 

A major issue with the current iteration of the Raise the Wage Act is its minimal impact 

on sectors that employ huge numbers of poor and working-class Americans. Construction, 

manufacturing, and educational services employ a combined 39.8 million Americans yet an 

average of 6.6% of the workers across these three sectors will see a positive impact from this 

new federal minimum wage. To increase the number of workers in these industries benefiting 

from the increased federal minimum wage, employers within these industries will be allowed to 

file for the WOTC under an expanded definition of the new targeted group. Instead of only 

57 “Work Opportunity Tax Credit” The Internal Revenue Service. Last Reviewed November 11, 2024. Link. 
56 Zipperer, “The Impact of the Raise the Wage Act of 2025.” 

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including workers living under the poverty line, employers with North American Industry 

Classification System (NAICS) numbers beginning with 23 (construction), 31-33 

(manufacturing), and 61 (educational services) will be able to include workers making up to 

300% of the minimum wage. This will drastically expand their ability to pay low-wage workers 

by allowing them to receive a greater tax credit in exchange for increased wages.58 

Finally, a new Wage Assistance Tax Credit (WATC) should be created to assist small 

businesses most negatively impacted by the increase in labor costs. Small businesses – as defined 

by the Small Business Administration in Title 13, Part 121 of the Code of Federal Regulations – 

will be given the opportunity to apply for the WATC in order to refrain from firing workers 

because of an increasing federal minimum wage.59 This tax credit will reimburse small 

businesses with half of the additional labor costs that arise as a result of the increased minimum 

wage. The WATC will last through 2031 and will not apply for the minimum wage increases due 

to annual indexing relative to median wages. Preference will be given to employers in states 

whose minimum wage as of 2025 is at the federal rate or up to two dollars above it. Only 

employers who employ workers full-time can qualify for the new WATC. Protecting the small 

businesses that drive the American economy is just as essential as protecting American workers. 

By utilizing these two tax credits, the federal government can work to reduce inequalities in the 

distribution of wages for both employers and workers without having to appropriate funds from 

the federal budget.  

 It is hard to ignore the increasingly visible reality that those at or near a minimum wage 

income are struggling to sustain a decent quality of life. In recent decades, wealth inequality has 

increased and economic mobility has decreased at alarming rates, giving rise to a growing 

59 13 CFR Part 121. https://www.ecfr.gov/current/title-13/chapter-I/part-121 
58 “Industries at a Glance: NAICS Code Index.” Bureau of Labor Statistics. October 5, 2022. Link. 

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https://www.bls.gov/iag/tgs/iag_index_naics.htm


 

movement dedicated to economic justice for low and working-class Americans.60 At the same 

time, policymakers cannot force businesses to adopt a policy that will impede growth, especially 

if small businesses are those most obstructed by the increase in labor costs. This combination of 

the Raise the Wage Act, an expanded WOTC, and the new WATC will “nudge” businesses to 

accept these changes in wage regulation so that market freedom, as much as is currently allowed, 

is maintained while enhancements to workers’ wages are enacted.61 By softening the impact of 

the increase for America’s most vulnerable businesses, these policies will feel like a smaller shift 

in behavior rather than a forceful suppression of economic freedom. If a substantive increase in 

the federal minimum wage is not agreed to in the coming years, policymakers can expect trends 

of inequality to continue, for workers to be left behind, and economic justice advocates to 

become increasingly disillusioned with the federal government’s ability to aid its citizens.  

61 Richard H. Thaler, Cass R. Sunstein. “The Cafeteria.” Nudge, Improving Decisions about Health, Wealth, and 
Happiness. Revised & Expanded Edition. Penguin Random House Publishing. 2009. 

60 Mishel, Gould, & Bivens.“Wage Stagnation in Nine Charts.” 

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