Effects of the

$1 Minimum Wage in Seven Areas

LOUIS E. BADENHOOP*

THE Fair Labor Standards Act was amended in August 1955, increasing the minimum wage for workers engaged in interstate commerce or the production of goods for such commerce from 75 cents to $1 an hour, effective March 1, 1956. As part of a broad program of studies initiated by the U. S. Department of Labor, surveys were conducted in selected communities to compare the effects of the higher minimum on the wages of workers in industries generally not subject to the act, with those in generally subject industries.1 This article summarizes data for 3 payroll periods, February and April 1956 and April 1957, for subject and nonsubject industries in 7 comparatively small labor markets. These areas are Athens, Ga., Dalton, Ga., Dothan, Ala., Fort Smith, Ark., Hickory, N. C., Meridian, Miss., and Sunbury-Shamokin-Mt. Carmel, Pa.

The immediate effect of the increase in the Federal minimum wage in all areas was confined largely to industries subject to the Fair Labor Standards Act. Between February and April 1956, average pay levels rose significantly in industries generally subject to the higher minmum; during the same period, little or no change occurred in industries generally not subject to the minimum. Wage structure changes that occurred in industries subject to the minimum were largely limited to increases granted to workers paid less than $1 before adjustments were made to the higher minimum. These increases resulted in a marked concentration of workers at or near the $1 minimum.

Between April 1956 and April 1957, the increase in average pay levels was relatively greater in

industries not subject to the Federal minimum in most areas studied. The concentration of workers within the $1 to $1.10 wage range declined somewhat in industries subject to the minimum in all areas. In industries not subject to the minimum, wage rates increased at most levels with some decline in the proportion of workers earning less than $1 an hour. This did not result in any substantial increase in the proportion of workers at or just above the $1 level.

Over the 14-month period from February 1956 to April 1957, the relative increase in average pay levels was greater in industries subject to the minimum than in nonsubject industries in 6 areas and the same in 1 area; the cents-per-hour increase was greater in industries subject to the minimum in all areas. Differences in average pay levels of workers in the two industry groups widened when the $1 minimum became effective and narrowed somewhat in the following year, but remained wider in April 1957 than in February 1956. Most employers covered by the higher minimum indicated that adjustments were made to the $1 wage rate without discharging workers.

Scope of Study

The study was designed to include employment and payroll data for three periods: February 1956, the month immediately preceding the effective date of the minimum; April 1956, to ascertain the immediate effects of the minimum; and April 1957, to measure the extent and methods of wage and employment policy adjustments to the minimum. Ten relatively small communities were selected for the initial study. These communities were selected primarily on the basis of the representation of manufacturing employment in industries in which the greatest impact was expected from the higher minimum wage. These included certain types of apparel, food products, furniture, lumber and wood products, and textiles. The 7 communities with the largest proportion of covered workers earning less than $1 an hour in February 1956

*Of the Division of Wages and Industrial Relations, Bureau of Labor Statistics.

1 The program was developed jointly by the Wage and Hour and Public Contracts Divisions and the Bureau of Labor Statistics. Studies in selected industries included in the program were summarized in the Monthly Labor Review, May 1958, pp. 492-501.

Fort Smith, Ark.... 47, 942 Furniture, food products,

Hickory, N. C..... Meridian, Miss____.

14, 755 41, 893

Sunbury-ShamokinMt. Carmel, Pa.

glass products, fabricated metals, apparel. Textiles, furniture. Lumber and wood products, food products, textiles, apparel.

46, 671 Apparel, textiles, food products, lumber products.

It should be noted that not all the wage adjustments during the 14-month period covered by the studies were necessarily related to the higher minimum wage. Moreover, labor turnover and labor force expansion or reduction during the period may have changed the proportion of workers at different pay levels within particular establishments, thus affecting wage levels and distributions.

Data were obtained by personal visits to representative manufacturing and nonmanufacturing establishments. Major industry groups excluded from these studies were government operations, transportation industries (except trucking and warehousing and service incidental to transportation), and the construction and extractive industries. Establishments having fewer than 8 workers at the time the lists were compiled for selection of the samples also were omitted.3

The tabulations were designed to furnish separate data for those industries in which employees generally are subject to the Fair Labor Standards Act (designated as subject industries) and for those in which employees generally are not subject to the act (designated as nonsubject industries).*

employees generally are subject to the Federal minimum wage accounted for a majority of the nonsupervisory employment in all areas. Primarily because of differences in the extent of manufacturing activity in these areas, the proportion of nonsupervisory employees in industries generally subject to the Federal minimum varied from approximately two-thirds of the total in Dothan and Meridian to nine-tenths in Dalton and almost that proportion in Hickory. Employment of women varied more widely in subject than in nonsubject industries among the areas, mainly because of differences in the extent of employment in such industries as apparel manufacture, in which women employees normally predominate. In subject industries, women represented from a fourth of the employees in Fort Smith to two-thirds in Sunbury-ShamokinMt. Carmel, whereas in nonsubject industries proportions of women employees ranged from about two-fifths in Athens and Dothan to slightly more than half in Sunbury-Shamokin-Mt. Carmel. Establishments within the nonsubject industry group were more homogeneous among the areas and employed mainly retail trade and service workers in each area.

Establishments having labor-management agreements covering a majority of their office or plant

The 3 areas not resurveyed in April 1957 were Burlington, Vt., Millville, N. J., and Spartanburg, S. C. In each of these areas, a relatively small proportion of workers in industries subject to the Federal minimum were paid less than $1 an hour in February 1956, before the $1 minimum became effective. Individual reports for all areas surveyed, available on request, provide detailed information on earnings and for such supplementary benefits as holiday and vacation pay, retirement plans, sick leave, and various insurance plans.

Establishments with from 4 to 8 workers in industries generally not subject to the Federal minimum wage were studied separately in Fort Smith, Ark. Earnings data for February and April 1956 and April 1957 are presented separately in BLS Report No. 127-6 for that area.

4 Since data were grouped by the establishment's industrial classification, a few workers or establishments may be improperly classified in terms of Federal minimum wage coverage. Industries, as defined in the Standard Industrial Classification Manual (U. S. Bureau of the Budget, 1945 edition for manufacturing and 1949 edition for nonmanufacturing), included in each group are as follows: Subject industries-Manufacturing (SIC groups 19 through 39); trucking and warehousing (42); services incidental to transportation (47); telecommunication (48); utility and sanitary services (49); wholesale trade (50 and 51); finance and insurance (60, 61, 62, 63, 64, and 67); miscellaneous business services (73); radio broadcasting and television (77); and miscellaneous services (89). Nonsubject industries-Retail trade (52 through 59); real estate (65 and 66); hotels and other lodging places (70); personal services (72); automobile repair services (75); miscellaneous repair service (76); motion picture (78); amusement and recreation services except motion pictures (79); medical and other health services (80); legal services (81); educational services (82); and museums, art galleries, and botanical and zoological gardens (84).

Includes workers commuting into the studied areas from adjacent communities and not included in the 1950 Census of Population figures for the areas.

workers were all within the category designated as subject industries. In these industries, such agreements applied in establishments employing about a sixth of the office workers and nearly three-fourths of the plant workers in SunburyShamokin-Mt. Carmel. In the 6 southern areas, less than a tenth of the office workers in each area were employed in subject establishments with agreements covering clerical employees; plantworker proportions in such establishments varied from virtually none in Dothan and Hickory to between one- and two-fifths in the other 4 areas.

A majority of the plant (nonoffice) workers in each broad industry group were paid on a time basis, i. e., hourly rate or salary. The proportion of workers paid on an incentive basis was higher in industries generally subject to the Federal minimum than in those not subject; among the areas, proportions paid on this basis ranged from a fourth to a half the workers in subject industries and from about a sixth to a fourth in nonsubject industries. Production workers paid piece rates in the apparel, textiles, and food products manufacturing industries represented the bulk of the workers paid on an incentive basis in subject industries, whereas incentive-paid workers in nonsubject industries were primarily retail sales clerks paid straight commissions or salary plus commissions.

Effects of the $1 Federal Minimum Wage

Average Pay Levels. In February 1956, shortly before the $1 minimum became effective, average hourly earnings among the 7 areas surveyed ranged from $1.07 in Dothan to $1.37 in Fort Smith in industries generally subject to the Federal minimum and from 82 cents in Meridian to 98 cents in Sunbury-Shamokin-Mt. Carmel in industries generally not subject to the minimum (table 1). Average pay levels in subject industries fell within a range of 9 cents ($1.07 to $1.16) in 5 of the areas and were within a more narrow range of 4 cents (90 to 94 cents) in nonsubject industries in 5 areas.

By April 1956, immediately after the $1 minimum had gone into effect, average earnings in subject industries had increased in all areas. The greatest increases, as might be expected,

• This decline in Dothan was due to labor turnover and to an increase in new hires at lower rates; not to reductions in wage rates.

generally occurred in areas having the lowest earnings levels. In Athens, Dothan, and Meridian, where average earnings in subject industries were lowest in February 1956 ($1.09, $1.07, and $1.14, respectively), increases amounted to 11.0, 10.3, and 10.5 percent, respectively. In contrast, Fort Smith and Sunbury-Shamokin-Mt. Carmel, with earnings levels of $1.37 and $1.28, respectively, had increases of 2.2 and 3.9 percent.

In the same 2-month period, there was little change in earnings levels in nonsubject industries. In 4 areas, increases ranged from 1.1 to 2.4 percent; in 2 areas, there were no changes; and in 1, there was a slight decline of 1.1 percent.

Between April 1956 and April 1957, average earnings levels rose in both industry groups in all areas. Increases in subject industries ranged from 1.7 percent in Dothan to 5.8 percent in Dalton. The smallest increases occurred in the 3 areas that had the largest increases in the February-April 1956 period (Athens, Dothan, and Meridian). Increases in nonsubject industries in the same period ranged from 3.2 percent in Athens to 8.3 percent in Meridian and were greater in all

areas than between February and April 1956. The percent increase during the year was greater in nonsubject industries than in subject industries in all areas except Athens, where increases were about the same in both industry groups (3.3 percent in subject and 3.2 percent in nonsubject industries).

As indicated by table 1, the relative increase in average hourly earnings in the two periods combined (February 1956 to April 1957) was greater in subject industries than in nonsubject industries, with the exception of a 6.6-percent increase in both industry groups in Fort Smith. However, in absolute terms, average earnings in that area increased 9 cents in subject industries compared with 6 cents in nonsubject industries in the 14month period. Fort Smith also had the smallest increase (2.2 percent) in average earnings between February and April 1956. Among the other areas, increases in average earnings ranged from 7.8 to 14.7 percent in subject industries, compared with a 4.3- to 11-percent range in nonsubject industries. There was no consistency in the relationship of

increases in nonsubject industries to those in subject industries by area. The percent increase in earnings levels between February 1956 and April 1957 in nonsubject industries was smallest in Athens (4.3 percent), where the largest increase occurred in subject industries (14.7 percent). On the other hand, Meridian had the largest increase over this period in nonsubject industries (11 percent) and also ranked next to Athens in the increase that occurred in subject industries (14 percent).

Earnings Distributions. In subject industries, the immediate effect of the increase in the Federal minimum wage to $1 an hour on March 1, 1956, was largely confined to workers who were paid less than $1 before rates were adjusted to the higher minimum. The proportions of nonsupervisory workers in these industries with earnings below $1 in February 1956 were as follows among the 7 areas: Dothan, 49 percent; Athens, 48 percent; Meridian, 45 percent; Hickory, 29 percent; Sunbury-Shamokin-Mt. Carmel, 24 percent; Fort Smith, 20 percent; and Dalton, 17 percent. Information obtained on general wage changes between August 1, 1955, and the February 1956 period studied indicated that establishments with wage rates below $1 an hour generally did not adjust these rates until after the February period, although there were exceptions in all areas, especially in Dalton and Hickory.

By April 1956, nonsupervisory workers in subject industries with hourly earnings below $1 had declined to 4 percent in Meridian, 3 percent in Sunbury-Shamokin-Mt. Carmel, and 2 percent or less in the other 5 areas." As a result of these increases, there was a sharp rise between February and April 1956 in the proportion of workers with earnings at or near the $1 level. As indicated by table 2, proportions of workers with earnings ranging from $1 to $1.10 increased among the areas from 11 percentage points in Dalton (from 26 to 37 percent) to 44 percentage points in Dothan (from 12 to 56 percent). Workers with earnings of $1.10 or more increased 11 percentage points (44 to 55 percent) in Meridian and 9 percentage points (49 to 58 percent) in Hickory,

1 Some of these workers were employed in establishments classified within the group of subject industries, but whose operations, restricted to intrastate commerce, exempted them from coverage under the Fair Labor Standards Act.

but increased 6 or less percentage points in the other 5 areas.

Between April 1956 and April 1957, there was a considerable decline in the concentration of workers with earnings ranging from $1 to $1.10 in subject industries. The extent of the movement i of workers to earnings levels above $1.10 during the year varied by area and apparently was influenced by factors such as industry composition and general economic conditions in each area. Declines in the proportion of workers with earnings of $1 to $1.10 ranged from 5 percentage points in Dothan (56 to 51 percent) and Meridian (41 to 36 percent) to 15 percentage points in Fort Smith (34 to 19 percent).

Pro

In nonsubject industries, comparatively little change occurred in the distribution of workers according to average hourly earnings between February and April 1956. In each area, there was a much higher proportion of workers in these industries earning less than $1 an hour in February 1956 than in subject industries, and there was less variation among the areas. portions of workers earning less than $1 an hour ranged from 60 percent in Sunbury-ShamokinMt. Carmel to 70 percent in Meridian. By April 1956, these proportions had decreased slightly. The proportion of workers with earnings of $1 to $1.10 increased slightly in all areas except Hickory, where there was no change. Proportions of workers with earnings of $1.10 or more remained the same or changed very little in this period in the 7 areas (table 2).

8

In the following year, there was much greater movement in wage rates in nonsubject industries than in the 2-month period in which the $1 minimum became effective. Increases in rates were widely distributed in each area with none of the areas showing marked increases in proportions of workers with earnings ranging from $1 to $1.10. The largest increase in this earnings range was in Dalton, where the proportion of workers increased from 16 percent in April 1956 to 20 percent in April 1957. Proportions of workers earning less than $1 declined somewhat in all areas except Athens (58 percent in both

periods), and the proportion of workers earning $1.10 or more increased in all areas.

Over the entire period from February 1956 to April 1957, declines in proportions of workers earning less than $1 an an hour in nonsubject industries ranged from 3 percentage points in Athens to 12 percentage points in two areas. Even by April 1957, however, from 48 percent of the workers in these industries in SunburyShamokin-Mt. Carmel to 58 percent in 4 areas were paid less than $1 an hour. In the opening and closing months of this 14-month period, proportions of workers earning from $1 to $1.10 were the same in Athens and Ft. Smith (9 percent in each); in Dalton, there was an increase of 9 percentage points (from 11 to 20 percent); in the other areas, increases were much smaller (from 2 to 4 percentage points). In the same period, proportions of workers earning $1.10 or more increased from 3 percentage points in Athens and Dalton to 8 percentage points in Meridian and Sunbury-Shamokin-Mt. Carmel.

Earnings Differentials. Differentials in the level of average hourly earnings between subject and Excess of average straight-time hourly earnings of nonsupervisory workers in subject industries over nonsubject industries in 7 areas, by sex and selected payroll periods

TABLE 3.

1

9

42

14

4

36

59

26

16

17

42

54 47

30

39

43

32 42

39

16

52

Pa.:

In some instances, these were workers in establishments in which at least some of their workers were covered by the Federal minimum but on the basis of the establishment's major activity, it was appropriately included in the nonsubject industry group as defined for the study.

1 Excludes premium pay for overtime and for work on weekends, holidays, and late shifts.

For industries included in the subject and nonsubject groups, see text footnote 4.