Co-authored by Ellora Derenoncourt, a UC Berkeley assistant professor of economics and of public policy
After a summer of protests over the killing of George Floyd broadened into a wider reckoning on racial injustice, corporate America and the political establishment unleashed a flurry of promises to combat systemic racism. Diversity initiatives have been launched; high-profile companies in several sectors have settled on the advancement of a few people of color in their hierarchies.
It’s clear that these actions, while positive steps, so far mostly concern an elite stratum. They are no substitute for dismantling structural racism in the economy. Recent American history, however, provides an apt lesson about which public policies are effective at reducing deep-rooted inequalities.
Our new research shows that Congress’s decision in 1966 to both raise the minimum wage and expand it to workers in previously unprotected industries led to a significant drop in earnings inequality between Black and white Americans — and explains more than 20 percent of the overall reduction during this period.
The findings suggest that raising and expanding the minimum wage could once again reduce the persistent earnings divide between white workers and Black, Hispanic and Native American workers. Though legislation to raise the wage floor would be a universal program in name and application, in practice it would be a remarkably effective tool for racial justice.
As with other major pieces of 20th-century progressive legislation, the cost of gaining Southern Democratic votes in 1938 for the federal minimum wage was a racist compromise: in this case, the exclusion of certain industries because of their high concentrations of Black workers, especially in the South.
Though it’s a fact that is often skipped over in popular histories, civil rights leaders who organized the famous March on Washington for Jobs and Freedom in 1963 demanded an increase in the minimum wage and one that applied to all employment. Modest but meaningful increases were eventually passed, and the Fair Labor Standards Act of 1966 also extended coverage to some of the excluded industries: nursing homes, laundries, hotels, restaurants, schools, hospitals and agriculture.
In 1967, the newly covered sectors employed about eight million workers ages 25 to 55, or about 21 percent of the U.S. prime-age work force. And, crucially, nearly one-third of Black workers were employed in these sectors.
White workers greatly benefited from the 1966 law; Black workers gained even more. In addition to being overrepresented in the newly covered industries, Black workers earned less on average in these industries than their white counterparts. So the earnings increase caused by the reform was 10 percent on average for Black workers in the newly covered industries, twice as much as that for white workers.
Based on our analysis, we estimate that the minimum wage increase was responsible for approximately 20 percent of the reduction in the earnings gap between Black and white workers between 1967 and 1980.
Economists who study gains in racial equality during that era have mostly credited improved educational outcomes for Black students (in terms of both number of years of school and quality of education) and the Civil Rights Act of 1964, which banned explicit job discrimination. But it’s clear now that the 1966 minimum wage reform also made a significant contribution.
When the March on Washington took place in 1963, Black workers in the United States earned on average 59 cents for every dollar earned by the average white worker. Today, Black workers in the United States earn on average 78 cents for every dollar earned by average white workers — a notable improvement. But this ratio has remained essentially unchanged since about 1980.
In one respect, this stagnation is a gloomy affirmation of Black families’ continued frustration with an economy stacked against them, four decades on. Yet it also indicates that raising and expanding the minimum wage today could be central to making progress again.
The coronavirus pandemic has exposed the economic perils still faced by Black, Hispanic and Native American workers as a result of their disproportionate employment in low-wage sectors of the labor market — jobs that while deemed invaluable “essential work” during this crisis often don’t pay a living wage. Making the minimum wage a living wage would match politicians’ rhetoric with actual public policy and would go a long way in making the lives of people of color materially better.
Opponents of minimum wage increases assert that they, for one thing, reduce the number of jobs available to low-income workers. However, numerous studies of minimum wage increases across historical contexts and countries indicate that even when the minimum wage is large with respect to prior median earnings, negative effects on employment tend to be limited.
Our research suggests the next Congress could raise the federal minimum wage substantially, reducing racial inequality without doing harm to the broader market.
Congress, as well as governors and state legislatures, could also expand the minimum wage to cover the millions of workers whose sectors continue to be excluded from it. Establishing federal, state or local minimum wage thresholds for independent contractors, for example, would lift the often paltry take-home pay workers receive in the gig economy, where Black workers and other workers of color are overrepresented. California is in the midst of such a fight — and facing opposition from many powerful tech giants.
Ending what’s known as the sub-minimum wage for tipped workers is another opportunity to level the playing field. Despite some improved state laws, employers of tipped workers are required by federal law to pay a mere $2.13 an hour. Not only is this exemption a direct legacy of efforts to economically hobble freed people after slavery; it also continues to have an outsize effect on female Black and Hispanic workers.
Tipped workers overall are twice as likely to live in poverty as the general work force. And tipped workers of color in the restaurant industry are twice as likely to live in poverty as their white counterparts.
It is no coincidence that civil rights leaders in 1963 singled out the minimum wage as a critical tool for racial justice, and their demands are just as salient today. The federal minimum wage has not been raised since it went to $7.25 an hour in 2009. And inflation has reduced its value by nearly one-third from its highest real value, in 1968.
If America’s contemporary leaders are serious about reducing racial inequality, they must push for simple, bold measures, such as doubling the federal minimum wage. Otherwise, the country may miss an opportunity, after the largest protests for racial equality in U.S. history, to improve the lives of millions of people of color.