Why Was Minimum Wage Established History Key Objectives

The concept of a minimum wage is now a cornerstone of labor policy in most developed nations, but it wasn’t always part of the economic landscape. Today, debates around minimum wage often focus on cost of living, inflation, and job markets. However, the origins of the minimum wage movement were rooted in deeper social and ethical concerns—chiefly, protecting vulnerable workers from exploitation and ensuring a basic standard of living. Understanding why the minimum wage was established requires a journey through industrial history, labor rights struggles, and evolving economic thought.

The Industrial Revolution and the Need for Worker Protection

During the 19th century, rapid industrialization transformed economies across Europe and North America. Factories emerged in urban centers, drawing millions of people—many of them women and children—into long hours of grueling labor for meager pay. With no legal safeguards, employers held nearly all the power in determining wages and working conditions.

In this environment, sweatshops became common. Workers often labored 12 to 16 hours a day in unsafe conditions, earning wages that barely covered subsistence. The absence of a safety net or labor regulations led to widespread poverty, malnutrition, and social unrest. Reformers began to question whether unregulated capitalism could coexist with human dignity.

Early labor movements called not only for shorter hours but also for a \"living wage\"—a sum sufficient to support a worker and their family in decent conditions. These calls laid the ideological foundation for what would eventually become the legal minimum wage.

The First Minimum Wage Laws: New Zealand and Australia Lead the Way

The world’s first effective minimum wage legislation emerged in the Southern Hemisphere. In 1894, New Zealand passed the Industrial Conciliation and Arbitration Act, establishing a system where wages could be set by government arbitration panels. This wasn’t a universal minimum wage, but it allowed for binding decisions on fair pay in specific industries.

Australia followed shortly after. In 1907, the Harvester Judgment by Justice Henry Bourne Higgins set a precedent by ruling that a manufacturer must pay male workers a wage sufficient to support a family in “frugal comfort.” The determined rate—seven shillings per day—became known as the “Harvester Wage” and marked one of the first judicial recognitions of a living wage principle.

“Fair and reasonable” wages should enable a worker to live decently, not merely survive. — Justice H.B. Higgins, 1907 Harvester Judgment

The U.S. Movement and the Fair Labor Standards Act

In the United States, the push for a national minimum wage gained momentum during the Great Depression. Widespread unemployment and deflation had driven wages to dangerously low levels. Companies competed by slashing pay, creating a race to the bottom that harmed both workers and the broader economy.

President Franklin D. Roosevelt’s New Deal included labor reforms aimed at stabilizing the economy and restoring purchasing power. After earlier attempts were struck down by the Supreme Court, the Fair Labor Standards Act (FLSA) of 1938 successfully established the first federal minimum wage in the U.S.

The initial rate was set at 25 cents per hour. While modest by today’s standards, it was revolutionary at the time. The FLSA also introduced overtime pay, child labor restrictions, and recordkeeping requirements, making it one of the most comprehensive labor laws in American history.

Tip: When studying historical labor policies, consider the economic context—minimum wage laws often emerge during periods of crisis or social upheaval.

Key Objectives Behind Establishing Minimum Wage

The creation of minimum wage laws was not arbitrary. Policymakers and reformers had clear goals in mind, many of which remain relevant today. The primary objectives included:

1. Eliminating Exploitative Labor Practices: Prevent employers from paying wages so low that workers could not meet basic needs.
2. Reducing Poverty and Inequality: Ensure that full-time work provides enough income to avoid dependency on public assistance.
3. Stimulating Economic Demand: Put more money in workers’ pockets so they can spend on goods and services, fueling economic growth.
4. Leveling the Playing Field: Stop unfair competition between businesses that pay fair wages and those that cut costs by underpaying workers.
5. Recognizing Work as Dignified: Affirm that every worker deserves compensation that respects their contribution and humanity.

Global Expansion and Modern Challenges

Following World War II, many countries adopted minimum wage systems as part of broader social welfare frameworks. By the late 20th century, over 90% of International Labour Organization (ILO) member states had some form of minimum wage regulation.

However, the effectiveness of these laws varies widely. Some nations index the minimum wage to inflation or median wages, while others rarely update it. In developing economies, enforcement remains a major challenge due to large informal sectors.

In recent decades, debates have intensified over whether the minimum wage should be a static floor or a dynamic benchmark tied to the cost of living. Movements like the Fight for $15 in the U.S. argue that traditional minimum wages no longer reflect modern living expenses, especially in high-cost urban areas.

Country	Year of First Minimum Wage Law	Initial Purpose
New Zealand	1894	Prevent wage undercutting via arbitration
Australia	1907	Ensure a “living wage” for families
United States	1938	Recover from Depression, boost demand
United Kingdom	1909 (Trade Boards), 1998 (modern NMW)	Protect low-paid workers in sweatshop industries
Germany	2015	Address growing wage inequality

Timeline of Major Minimum Wage Milestones

1. 1894: New Zealand introduces wage arbitration system.
2. 1907: Australia’s Harvester Judgment sets living wage standard.
3. 1938: U.S. enacts Fair Labor Standards Act with 25¢/hour minimum.
4. 1944: ILO declares fair remuneration a basic labor right in its Declaration of Philadelphia.
5. 1998: UK establishes National Minimum Wage under Tony Blair’s government.
6. 2015: Germany adopts its first nationwide minimum wage (€8.50/hour).
7. 2020s: Multiple U.S. cities and states move toward $15/hour minimums.

Case Study: Seattle’s $15 Minimum Wage Experiment

In 2014, Seattle became one of the first major U.S. cities to pass a law gradually raising the minimum wage to $15 per hour. The increase was phased in over several years, depending on business size and benefits offered.

Economists from the University of Washington and UC Berkeley studied the effects. Initial findings showed mixed results: while low-wage workers saw significant income gains, some studies indicated reduced employment hours in certain sectors, particularly food services.

Despite controversy, follow-up research found that overall, the policy lifted thousands out of poverty without causing widespread job loss. Seattle’s experience demonstrated that well-designed minimum wage increases can improve living standards when implemented gradually and monitored closely.

“The goal isn’t just to pay more—it’s to create an economy where work pays.” — Dr. Annette Bernhardt, Labor Economist, University of California

Common Misconceptions About Minimum Wage

• Myth: Raising the minimum wage always causes massive job losses.
  Reality: Most empirical studies show modest employment effects, with some sectors adjusting through small price increases or productivity gains.
• Myth: Only teenagers work for minimum wage.
  Reality: Over 60% of minimum wage earners in the U.S. are adults over 20, and many are supporting families.
• Myth: Minimum wage jobs are temporary stepping stones.
  Reality: Millions rely on these jobs long-term, especially in retail, hospitality, and home care.

FAQ

Why wasn't minimum wage introduced earlier in history?

Before the 20th century, classical economic theories dominated, emphasizing free-market wage determination. Governments feared intervention would distort labor markets. It took visible social costs—child labor, extreme poverty, strikes—to shift public opinion toward regulation.

Does minimum wage apply to all workers?

No. Exemptions exist for tipped workers, youth, disabled employees, and certain trainees, though these vary by country and state. Independent contractors and gig workers are often excluded, sparking ongoing debate about labor classification.

How is the minimum wage amount decided?

In some countries, independent commissions recommend adjustments based on inflation, productivity, and living costs. In others, political bodies set rates, leading to irregular updates. Best practices favor transparent, evidence-based processes.

Tip: Support local businesses that pay living wages—they contribute to stronger, more resilient communities.

Action Checklist: Supporting Fair Wage Policies

• Research your local minimum wage and whether it’s adjusted for inflation.
• Advocate for living wage ordinances in your city or workplace.
• Support businesses that voluntarily pay above-minimum wages.
• Vote for candidates who prioritize fair labor standards.
• Contribute to organizations fighting for worker justice and wage transparency.

Conclusion

The establishment of the minimum wage was never just about setting a number on a paycheck. It was—and remains—a moral statement about the value of work and the dignity of workers. From the sweatshops of the 1800s to the gig economies of today, the fight for fair compensation continues. While economic models and political climates evolve, the core objective endures: to ensure that anyone who works full-time should be able to live with security and respect.

🚀 Take action today: Learn about your region’s minimum wage laws, share this knowledge, and advocate for policies that uphold the principle that work should pay.