A Century of Stunning Progress for the American Worker

Next time you open your pay envelope and feel like squawking about the tax bite, consider your counterpart of 100 years ago.

True, workers did not face Social Security or income taxes; neither system had yet been invented. Nothing was taken out for health insurance, either; that benefit, like most other perks, was virtually unknown. There was no minimum wage, no required overtime pay, not even a limit on the number of hours an employer could demand.

And no matter how little you are paid, it can’t compete with the paltry sums earned by the average worker in 1900. Even adjusted for inflation, the typical employee made less than $10,000 a year.

The growth of the American paycheck--and simultaneous improvements in working hours and conditions--has come about from a mixture of trends, including economic progress, increased labor union muscle and government edict. Interestingly, many of the debates over these trends continue even today as Congress struggles with minimum-wage increases and cities argue over what is considered a “living wage.”

But truly picturing how far we have come--and the lot of a worker in 1900--can be difficult from 100 years’ distance.

Consider that for most of the 19th century and into the 20th, worker pleas to limit the workday were routinely ignored. In many industries, 10-hour and even 12-hour shifts, six days a week, were the norm. One of the first American labor strikes, in 1825, was by carpenters demanding a 10-hour day. Little changed even after the Haymarket Riots in Chicago in May 1886, when thousands of workers futilely fought for adoption of an eight-hour workday.

A few employers bucked the trend. Ford Motor Co. increased worker pay in 1914 from $2.40 for a nine-hour day to $5 for an eight-hour day, in part to help workers afford the cars they were making. Henry Ford was criticized by some of his industrialist peers, who worried that he might start a dangerous precedent; but few companies followed his lead.

Child labor at the turn of the century, meanwhile, was legal and rampant. Census records show 62% of boys aged 14 to 19 were in the work force; children as young as 6 worked in factories and coal mines.

The elderly worked too, whether they wanted to or not. In 1900, 63% of men over 65 were still in the labor force, at a time when the average life expectancy was 49 and pensions were extremely unusual. Retirement benefits were available to a few workers at a handful of companies and to Civil War veterans--but only those who had fought for the North, not those who served the Confederacy.

Efforts to establish minimum wages and maximum hours were rarely passed and, when they were, failed to survive the U.S. Supreme Court. In 1905, for example, the high court declared unconstitutional a law that would have established a maximum number of hours for bakery workers. State minimum-wage laws were routinely challenged and dismantled by the court well into the 1930s.

Child labor laws fared no better. In 1918, the high court declared unconstitutional a federal child labor act passed two years earlier. A second law, passed in 1919, met the same fate. Proponents tried to pass an amendment to the Constitution in 1924 that would have banned child labor, but only 28 of the needed 36 states ratified the measure.

A bad situation grew worse with the Great Depression of the 1930s. A Labor Department survey found that a quarter of working children labored more than 60 hours a week for a median wage of $4 a week, or $208 a year.

Children weren’t the only ones suffering, of course. Wages across the country spiraled downward as official unemployment reached 25% of the population. Even people who managed to keep their jobs found their pay slashed as millions of unemployed competed for work. The average annual earnings of full-time employees plunged from $1,405 in 1929 to $1,048 four years later. Even accounting for deflation--prices dropped along with wages--the employed were making less.

The Depression was also the era of the company store scandals, where many mine workers and factory laborers were paid only in company scrip or found their entire paychecks confiscated for company-provided housing and purchases at the company-owned grocery.

Labor strikes and unrest were leading to riots and even deaths. Although the right of workers to organize was acknowledged in the 1926 Railway Labor Act and expanded in the 1932 Norris-LaGuardia Act, union-busting and violence against strikers were widespread.

The worsening crisis prompted President Franklin D. Roosevelt and other labor advocates to propose sweeping changes for a nation that, in the president’s words, was increasingly “ill-nourished, ill-clad and ill-housed.”

Roosevelt’s first major effort, the 1933 National Industrial Recovery Act, or NRA, was dismantled by the Supreme Court after two years. But by then employers responsible for more than 16 million workers had signed pacts agreeing to a 40-hour workweek and a $12-a-week minimum wage. The employers also agreed not to employ workers under age 16 under most conditions, and many displayed a blue NRA sign with an eagle on it to declare their allegiance to the president’s goals.

The act suspended antitrust laws in an effort to reduce competition and raise wages. That’s where the high court took exception, declaring the act unconstitutional in 1935.

That same year, however, Congress enacted what has been called the most important labor legislation of the ‘30s: the National Labor Relations Act. With some exceptions, the act affirmed the right of workers to organize, join labor movements, bargain collectively and strike. The National Labor Relations Board was given power to certify unions, and employers were forbidden to engage in unfair practices.

Roosevelt tried again to improve labor conditions directly with the Public Contracts Act of 1936, also known as the Walsh-Healey bill. The act required eight-hour workdays and 40-hour workweeks for government contractors. The minimum age for male workers was 16; for females, 18. Contractors were required to pay a “prevailing minimum wage” as determined by the secretary of Labor.

Roosevelt finally got a more comprehensive bill in 1938, when he signed the Fair Labor Standards Act. That measure outlawed most child labor, set the maximum workweek without overtime at 44 hours and established the first minimum wage--25 cents an hour, or about $2.89 in 1998 dollars. The workweek was reduced to 40 hours in 1940.

Many business leaders, as well as some unions, opposed the bill. Business argued that the measure would bankrupt them or lead to higher unemployment; some labor officials worried that the minimum would become a ceiling, rather than a floor.

Despite the debate, Congress has continued to boost the minimum wage throughout the years. In real-dollar terms, the minimum wage peaked at $1.60 in 1968, or $7.49 in today’s dollars. The current minimum wage is $5.15.

Another major Roosevelt innovation, the Social Security system, led to the first payroll taxes in 1937. Employers and employees each contributed 1% of workers’ pay into the system.

Today workers contribute 1.45% of their salaries just to Medicare (a medical insurance program for the elderly created in 1965), whereas 6.2% of their salaries goes to Social Security (up to a maximum salary level, which in 1999 was $72,600). Employers contribute an equal amount.

Income tax withholding would come a few years later, during World War II, even though the amendment authorizing income taxes was passed in 1916. Until the second world war, too few workers paid income taxes to warrant withholding.

Meanwhile, worker pay continued to rise, thanks to a generally expanding economy and increased worker education as the GI Bill financed veterans’ college educations. Today, 25% of the general population holds a college degree, according to census surveys; the percentage was 13% in 1969.

Women joined the labor force in greater numbers, a trend that has contributed to a rise in the real median income of all married-couple families from $20,620 in 1947 to $51,591 in 1997, Census Bureau figures show. (Amounts are in adjusted, 1997 dollars). But dual-income families weren’t the only ones to benefit. Real per capita income rose 77% between 1967 and 1997, to $19,241 from $10,895.

Inequalities exist, of course. The Census Bureau reports that women continue to earn less than men. On the other hand, today’s women earn more than their counterparts in previous generations--a trend that used to be true of every working group, but that is no longer true of young men.

In fact, wages overall have failed to grow significantly in recent years even as unemployment has declined to 30-year lows. Some economists argue that technology-related boosts in productivity have fundamentally changed the economy, allowing job growth without wage inflation--two trends that have been strongly linked in the past.

Others, however, say the lack of wage increases is due in part to lower-paying service jobs replacing higher-paying manufacturing jobs. Compensation has changed at many companies as well; employers concerned about costs increasingly offer bonuses and profit-sharing, which are easy to cut in hard times, rather than pay hikes, which are harder to rescind, compensation experts say.

And then there are stock options--perhaps the biggest compensation trend of the 1990s. Once reserved for executives and entrepreneurs, stock options are increasingly being used to attract and retain workers at all economic levels.

That can be good news for employees who stand to benefit directly if a company’s market value increases. But it also shifts more risk to the worker, who may be giving up a bigger paycheck for the prospect of future wealth. And some worry about a backlash should the stock market falter.

A sustained market downturn could spark sudden wage inflation, as employees with valueless options begin clamoring for more cash, said attorney Gabor Garai, managing partner at the Boston offices of Epstein Becker & Green, one of the world’s largest labor and employment law firms.

If companies meet those demands, he reasons, earnings and stock prices will take further hits, which could even lead to a recession. If companies resist, workers who have increased their spending based on stock market wealth will find themselves deep in debt.

“The employee has to take a look at their own risk tolerance and personal situation to determine whether or not they can afford a smaller base salary and the possibility that they might have to dust themselves off a few times” should the company’s stock falter, said Larry Colson, vice president of consulting services for Los Angeles-based Employers Group, the nation’s largest human resources consulting association.

Yet most compensation experts say that stock options, bonuses and profit-sharing likely will continue to be the wave of the future.

“The trend is very strong toward variable pay. Companies have seen that’s how you motivate employees,” Colson said.