Princeton Industrial Relations Section

Studying Minimum Wage

David Card and Alan Krueger on a balcony in Firestone LIbrary

New methodologies sparked the “credibility revolution” and provided empirical support for policies that set a minimum wage

A landmark experiment by Alan Krueger was only the beginning of innovative research that challenged conventional wisdom on the minimum wage.

1938

The federal minimum wage is established

IR Section research on the minimum wage pre-dates the establishment of the federal minimum wage, beginning with the publication of “Minimum Wage Legislation in the United States: Summary of Fact and Opinion” in 1933.

The Fair Labor Standards Act of 1938–one of many controversial New Deal programs that created new protections for workers—established a federal minimum wage and the right to overtime pay for hours worked beyond 40 hours per week.

Find “Minimum Wage Legislation in the United States: Summary of Fact and Opinion” in the Princeton University Library

Find “Memorandum: The Five-Day Week in Industry; Statements of Fact and Opinion” in the Princeton University Library

"Minimum Wage Legislation in the United States" (37); Industrial Relations Section Records, MC231, Public Policy Papers, Department of Special Collections, Princeton University Library
Industrial Relations section publication that summarizes the facts and opinions about minimum wage legislation in the United States. 4th Edition published in 1936. Originally published in 1933.
1938-1980

FLSA amendments and adjustments to the minimum wage

Since its passing, the Fair Labor Standards Act (FLSA) has been amended many times to adjust the level of the minimum wage or to redefine–and at times limit–which categories of workers are covered by the Act’s provisions.

Amendments to the FLSA increased the minimum wage in 1949, 1955, 1961,  1966, 1974, and 1977. In a 1961 amendment, retail and service industries were granted an exception that allowed them to pay certain employees below the minimum wage. In 1966, coverage under the Act was extended to employees of public schools, nursing homes, laundries, the construction industry, and some farms. In 1977 an amendment ensured many employees of federal, state, and local governments were subject to the federal minimum wage.

1980-1988

The Reagan years shrink the real value of the minimum wage

In the 1980s, the Reagan administration created a political environment that stood in sharp contrast to the pro-worker sentiment of the New Deal. As a popular book and documentary series by the economist Milton Friedman and his wife Rose Friedman set off a vigorous debate about whether and how minimum wages might hurt the U.S. economy and U.S. workers, the minimum wage remained flat.

Throughout Reagan’s two terms as president, the real value of the minimum wage declined, reaching its lowest point since the 1950s by the end of the decade.

1986

The “credibility revolution” finds its roots at Princeton

In 1986, IR Section Director Orley Ashenfelter published a paper that helped launched the “credibility revolution” in economics–a term that refers to the field’s recognition that gold-standard experimental methods (like those often used in the hard sciences) can improve the credibility and reliability of new findings in economics research.

An excerpt from “The Case for Evaluating Training Programs with Randomized Trials” by Orley Ashenfelter (Economics of Education Review, 1986).
 An excerpt from “The Case for Evaluating Training Programs with Randomized Trials” by Orley Ashenfelter (Economics of Education Review, 1986).

In “The Case for Evaluating Training Programs with Randomized Trials,” Ashenfelter uses classical experimental methods to compare employment, earnings, and other outcomes of training programs across groups. Ultimately, he argued that the use of experimental methods in some contexts could not only produce more credible results, but also provide a cost-effective way to study the effects of different policies.

In the decades to come, the study’s methodology would influence the use of experiments in hundreds if not thousands of papers–including groundbreaking work by IR Section researchers on the minimum wage–starting with two papers by Nobel Laureates Joshua Angrist (IR Section Working Paper #251) and David Card (IR Section Working Paper #253). Both papers were produced at IRS in 1989 while Angrist was a Ph.D. student and Card was serving as a professor of economics.

1993

Surprising results from an experiment in New Jersey

David Card and Alan Krueger in Firestone Library.
David Card and Alan Krueger in Firestone Library. Photo: Frank C. Dougherty
David Card and Alan Krueger in Firestone Library. Photo: Frank C. Dougherty

In 1993, after a decade of heightened skepticism about minimum wage policies, IR Section faculty Alan Krueger and David Card published a study that not only challenged prevailing wisdom about the effects of the minimum wage, but also set a new standard for policy evaluation.

In “Minimum Wages and Employment: A Case Study of the Fast Food Industry in New Jersey and Pennsylvania” (IR Section Working Paper #315), Card and Angrist surveyed more than 400 fast food restaurants in New Jersey and Pennsylvania before and after a rise in New Jersey’s minimum wage. They found that the wage increase did not force restaurants to cut jobs. In fact, restaurants in New Jersey subject to the wage increase hired 2.5 more employees per store than restaurants in Pennsylvania.

1999-2023

The relationship between minimum wages and inequality

As Krueger and Card conducted their path-breaking work on the minimum wage, another prominent labor economist and future IR Section director was working on his dissertation at Princeton. In 1999, the same year he graduated from Princeton, David Lee published an examination of whether stagnant minimum wages during the 1980s contributed to the growth in wage inequality observed during the Reagan administrations.

Lee’s research, published by the Quarterly Journal of Economics, found that much of the growth of “within group” inequality in wages during the 1980s (i.e. where worker gender, race, or educational attainment are the same or similar) between workers at the 10th and 50th percentile in the wage distribution is due to a decline in the real value of the federal minimum wage. This was especially true for women.

David S. Lee
David Lee. Photo: Sameer Khan/Fotobuddy

Work on the minimum wage has continued until this day. In 2021, nearly 100 years after the Section’s founding, a Quarterly Journal of Economics paper by Ellora Derenoncourt–who joined Princeton that same year–showed that the expansion of the minimum wage in the late 1960s and early 1970s played a critical role in the decline of the racial earnings gap.

Ellora Derenoncourt
Ellora Derenoncourt. Photo: Sameeer Khan/Fotobuddy