Minimum wage in the United States
Encyclopedia
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
is $7.25 per hour. Some states and municipalities have set minimum wage
Minimum wage
A minimum wage is the lowest hourly, daily or monthly remuneration that employers may legally pay to workers. Equivalently, it is the lowest wage at which workers may sell their labour. Although minimum wage laws are in effect in a great many jurisdictions, there are differences of opinion about...
s higher than the federal level (see List of U.S. minimum wages), with the highest state minimum wage being $8.67 in Washington. Some U.S. territories (such as American Samoa
American Samoa
American Samoa is an unincorporated territory of the United States located in the South Pacific Ocean, southeast of the sovereign state of Samoa...
) are exempt. Some types of labor are also exempt, and tipped labor must be paid a minimum of $2.13 per hour, as long as the hourly wage plus tipped income result in a minimum of $7.25 per hour.
The July 24, 2009 increase was the last of three steps of the Fair Minimum Wage Act of 2007
Fair Minimum Wage Act of 2007
The Fair Minimum Wage Act of 2007 is a US Act of Congress that amended the Fair Labor Standards Act of 1938 to gradually raise the federal minimum wage from $5.15 per hour to $7.25 per hour. It was signed into law on May 25, 2007 as part of the U.S. Troop Readiness, Veterans' Care, Katrina...
. The wage increase was signed into law on May 25, 2007 as a rider
Rider (legislation)
In legislative procedure, a rider is an additional provision added to a bill or other measure under the consideration by a legislature, having little connection with the subject matter of the bill. Riders are usually created as a tactic to pass a controversial provision that would not pass as its...
to the U.S. Troop Readiness, Veterans' Care, Katrina Recovery, and Iraq Accountability Appropriations Act, 2007. The bill also contains almost $5 billion in tax cuts for small businesses.
Among those paid by the hour in 2009, 980,000 were reported as earning exactly the prevailing Federal minimum wage. Nearly 2.6 million were reported as earning wages below the minimum. Together, these 3.6 million workers with wages at or below the minimum made up 4.9 percent of all hourly-paid workers.
Earlier U.S. minimum wages laws
In 1912, MassachusettsMassachusetts
The Commonwealth of Massachusetts is a state in the New England region of the northeastern United States of America. It is bordered by Rhode Island and Connecticut to the south, New York to the west, and Vermont and New Hampshire to the north; at its east lies the Atlantic Ocean. As of the 2010...
organized a commission to recommend non-compulsory minimum wages for women and children. Within eight years, at least thirteen U.S. state
U.S. state
A U.S. state is any one of the 50 federated states of the United States of America that share sovereignty with the federal government. Because of this shared sovereignty, an American is a citizen both of the federal entity and of his or her state of domicile. Four states use the official title of...
s and the District of Columbia would pass minimum wage law
Minimum wage law
Minimum wage law is the body of law which prohibits employers from hiring employees or workers for less than a given hourly, daily or monthly minimum wage. More than 90% of all countries have some kind of minimum wage legislation....
s. The Lochner era
Lochner era
The Lochner era is a period in American legal history in which the Supreme Court of the United States tended to strike down laws held to be infringing on economic liberty or private contract rights, and takes its name from a 1905 case, Lochner v. New York. The beginning of the period is usually...
United States Supreme Court consistently invalidated compulsory minimum wage laws. Such laws, said the court, were unconstitutional for interfering with the ability of employers to freely negotiate appropriate wage contracts with employees.
The first attempt at establishing a national minimum wage came in 1933, when a $0.25 per hour standard was set as part of the National Industrial Recovery Act
National Industrial Recovery Act
The National Industrial Recovery Act , officially known as the Act of June 16, 1933 The National Industrial Recovery Act (NIRA), officially known as the Act of June 16, 1933 The National Industrial Recovery Act (NIRA), officially known as the Act of June 16, 1933 (Ch. 90, 48 Stat. 195, formerly...
. However, in the 1935 court case Schechter Poultry Corp. v. United States
Schechter Poultry Corp. v. United States
A.L.A. Schechter Poultry Corp. v. United States, 295 U.S. 495 , was a decision by the Supreme Court of the United States that invalidated regulations of the poultry industry according to the nondelegation doctrine and as an invalid use of Congress's power under the commerce clause...
(295 U.S. 495), the United States Supreme Court declared the act unconstitutional, and the minimum wage was abolished.
Fair Labor Standards Act
The Fair Labor Standards Act of 1938 is a federal statute of the United States. The FLSA established a national minimum wage, guaranteed 'time-and-a-half' for overtime in certain jobs, and prohibited most employment of minors in "oppressive child labor," a term that is defined in the statute...
), once again at $0.25 per hour ($3.77 in 2009 dollars). The minimum wage had its highest purchasing value
Purchasing power
Purchasing power is the number of goods/services that can be purchased with a unit of currency. For example, if you had taken one dollar to a store in the 1950s, you would have been able to buy a greater number of items than you would today, indicating that you would have had a greater purchasing...
ever in 1968, when it was $1.60 per hour ($9.86 in 2010 dollars). From January 1981 to April 1990, the minimum wage was frozen at $3.35 per hour, then a record-setting wage freeze. From September 1, 1997 through July 23, 2007, the federal minimum wage remained constant at $5.15 per hour, breaking the old record.
Congress then gave states the power to set their minimum wages above the federal level. , fourteen states had done so. Some government entities, such as counties and cities, observe minimum wages that are higher than the state as a whole. One notable example of this is Santa Fe, New Mexico
Santa Fe, New Mexico
Santa Fe is the capital of the U.S. state of New Mexico. It is the fourth-largest city in the state and is the seat of . Santa Fe had a population of 67,947 in the 2010 census...
, whose $9.50 per hour minimum wage was the highest in the nation, until San Francisco increased its minimum wage to $9.79 in 2009. Another device to increase wages, living wage
Living wage
In public policy, a living wage is the minimum hourly income necessary for a worker to meet basic needs . These needs include shelter and other incidentals such as clothing and nutrition...
ordinances, generally apply only to businesses that are under contract to the local government itself.
On November 7, 2006, voters in six states (Arizona
Arizona
Arizona ; is a state located in the southwestern region of the United States. It is also part of the western United States and the mountain west. The capital and largest city is Phoenix...
, Colorado
Colorado
Colorado is a U.S. state that encompasses much of the Rocky Mountains as well as the northeastern portion of the Colorado Plateau and the western edge of the Great Plains...
, Missouri
Missouri
Missouri is a US state located in the Midwestern United States, bordered by Iowa, Illinois, Kentucky, Tennessee, Arkansas, Oklahoma, Kansas and Nebraska. With a 2010 population of 5,988,927, Missouri is the 18th most populous state in the nation and the fifth most populous in the Midwest. It...
, Montana
Montana
Montana is a state in the Western United States. The western third of Montana contains numerous mountain ranges. Smaller, "island ranges" are found in the central third of the state, for a total of 77 named ranges of the Rocky Mountains. This geographical fact is reflected in the state's name,...
, Nevada
Nevada
Nevada is a state in the western, mountain west, and southwestern regions of the United States. With an area of and a population of about 2.7 million, it is the 7th-largest and 35th-most populous state. Over two-thirds of Nevada's people live in the Las Vegas metropolitan area, which contains its...
, and Ohio
Ohio
Ohio is a Midwestern state in the United States. The 34th largest state by area in the U.S.,it is the 7th‑most populous with over 11.5 million residents, containing several major American cities and seven metropolitan areas with populations of 500,000 or more.The state's capital is Columbus...
) approved statewide increases in the state minimum wage. The amounts of these increases ranged from $1 to $1.70 per hour and all increases are designed to annually index to inflation
Inflation
In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time.When the general price level rises, each unit of currency buys fewer goods and services. Consequently, inflation also reflects an erosion in the purchasing power of money – a...
.
Some politicians in the United States advocate linking the minimum wage to the Consumer Price Index
Consumer price index
A consumer price index measures changes in the price level of consumer goods and services purchased by households. The CPI, in the United States is defined by the Bureau of Labor Statistics as "a measure of the average change over time in the prices paid by urban consumers for a market basket of...
, thereby increasing the wage automatically each year based on increases to the Consumer Price Index. So far, Ohio
Ohio
Ohio is a Midwestern state in the United States. The 34th largest state by area in the U.S.,it is the 7th‑most populous with over 11.5 million residents, containing several major American cities and seven metropolitan areas with populations of 500,000 or more.The state's capital is Columbus...
, Oregon
Oregon
Oregon is a state in the Pacific Northwest region of the United States. It is located on the Pacific coast, with Washington to the north, California to the south, Nevada on the southeast and Idaho to the east. The Columbia and Snake rivers delineate much of Oregon's northern and eastern...
, Missouri
Missouri
Missouri is a US state located in the Midwestern United States, bordered by Iowa, Illinois, Kentucky, Tennessee, Arkansas, Oklahoma, Kansas and Nebraska. With a 2010 population of 5,988,927, Missouri is the 18th most populous state in the nation and the fifth most populous in the Midwest. It...
, Vermont
Vermont
Vermont is a state in the New England region of the northeastern United States of America. The state ranks 43rd in land area, , and 45th in total area. Its population according to the 2010 census, 630,337, is the second smallest in the country, larger only than Wyoming. It is the only New England...
and Washington have linked their minimum wages to the consumer price index. Minimum wage indexing also takes place each year in Florida
Florida
Florida is a state in the southeastern United States, located on the nation's Atlantic and Gulf coasts. It is bordered to the west by the Gulf of Mexico, to the north by Alabama and Georgia and to the east by the Atlantic Ocean. With a population of 18,801,310 as measured by the 2010 census, it...
, San Francisco, California, and Santa Fe, New Mexico
Santa Fe, New Mexico
Santa Fe is the capital of the U.S. state of New Mexico. It is the fourth-largest city in the state and is the seat of . Santa Fe had a population of 67,947 in the 2010 census...
.
Minimum wage jobs rarely include health insurance
Health insurance
Health insurance is insurance against the risk of incurring medical expenses among individuals. By estimating the overall risk of health care expenses among a targeted group, an insurer can develop a routine finance structure, such as a monthly premium or payroll tax, to ensure that money is...
coverage, although that is changing in some parts of the United States where the cost of living is high, such as California
California
California is a state located on the West Coast of the United States. It is by far the most populous U.S. state, and the third-largest by land area...
.
Economists' analysis
According to a paper by Fuller and Geide-Stevenson, 45.6% of American economists in the year 2000 agreed that a minimum wage increases unemploymentUnemployment
Unemployment , as defined by the International Labour Organization, occurs when people are without jobs and they have actively sought work within the past four weeks...
among unskilled and young workers, while 27.9% agree with this statement but with provisos. As a policy question in 2006, the minimum wage has—to some extent—split the economics profession with just under half believing it should be eliminated and a slightly smaller percentage believing it should be increased, leaving rather few in the middle.
Some idea of the empirical problems of this debate can be seen by looking at recent trends in the United States. The minimum wage fell about 29% in real terms between 1979 and 2003. For the median worker, real hourly earnings have increased since 1979; however, for the lowest deciles, there have been significant decreases in the real wage without much decrease in the rate of unemployment. Some argue that a declining minimum wage might reduce youth unemployment (since these workers are likely to have fewer skills than older workers).
Overall, there is no consensus between economists about the effects of minimum wages on youth employment, although empirical evidence suggests that this group is most vulnerable to high minimum wages.
Reasons for Economic Controversy
Classical economics argues that the demand for labor increases as the price of labor falls. Each firm must evaluate the potential to make a profit from each worker hired; if the workers cost less, then more profit can be made from hiring more workers at a lower price. Therefore, by setting a lower boundary to wages, a minimum wage law prevents firms from offering jobs below the minimum and increases unemployment.In Keynesian economics the perspective is very different. Although employers and workers set their wages in nominal terms, they are unable to predict the exact purchasing power of those wages. The value of the real wage
Real wage
The term real wages refers to wages that have been adjusted for inflation. This term is used in contrast to nominal wages or unadjusted wages. Real wages provide a clearer representation of an individual's wages....
can only be known "ex post" -- long after the workers have been paid. Neither unions nor government authorities know the real wage and can only approximate it by regulating the nominal wage. The real wage is the purchasing power of wages when adjusted for inflation, but inflation--the purchasing power of money and therefore of wages--depends on total levels of investment.
Investment, in its turn, depends upon consumption, and consumption depends upon the marginal propensity to consume
Marginal propensity to consume
In economics, the marginal propensity to consume is an empirical metric that quantifies induced consumption, the concept that the increase in personal consumer spending occurs with an increase in disposable income...
(savings rate) across all income categories. In an "underconsumption" scenario, the transfer of income from entrepreneurs and rentiers (those with higher incomes) to the working class (via union wage agreements and minimum wages) can actually lead to an increase in total consumption and higher demand for goods--leading to increased employment. However, the resulting higher price levels may spur several forms of political and institutional responses that blunt or negate this tendency. For one, inflation tends to transfer income from bond holders (rentiers) to wage earners. For another, entrepreneurs may, under conditions of oligopoly
Oligopoly
An oligopoly is a market form in which a market or industry is dominated by a small number of sellers . The word is derived, by analogy with "monopoly", from the Greek ὀλίγοι "few" + πόλειν "to sell". Because there are few sellers, each oligopolist is likely to be aware of the actions of the others...
be able to blunt the effect of rising wages by using their market power to raise prices fast enough to prevent real gains among workers. And finally, the central bank
Central bank
A central bank, reserve bank, or monetary authority is a public institution that usually issues the currency, regulates the money supply, and controls the interest rates in a country. Central banks often also oversee the commercial banking system of their respective countries...
may intervene to defend price levels by increasing interest rates, which will tend to curb investment and decrease the demand for labor.
Without choosing from among these perspectives, it is sufficient to say that minimum wage increases are unlikely to have a simple linear effect on employment. The interconnection of price levels, central bank policy, wage agreements, total aggregate demand creates a situation where the conclusions to be drawn from macroeconomic analysis will be highly influenced by the underlying assumptions.
Jobs affected by the minimum wage
The jobs that are most likely to be directly affected by the Minimum Wage are the ones that pay a wage close to the minimum.According to the May 2006 National Occupational Employment and Wage Estimates, the four lowest-paid occupational sectors in May 2006 (when the Federal Minimum Wage was $5.15 per hour) were the following:
| Sector | Workers Employed | Median Wage | Mean Wage | Mean Annual |
|---|---|---|---|---|
| Food Preparation and Serving Related Occupations | 11,029,280 | $7.90 | $8.86 | $18,430 |
| Farming, Fishing, and Forestry Occupations | 450,040 | $8.63 | $10.49 | $21,810 |
| Personal Care and Service Occupations | 3,249,760 | $9.17 | $11.02 | $22,920 |
| Building and Grounds Cleaning and Maintenance Occupations | 4,396,250 | $9.75 | $10.86 | $22,580 |
Two years later, in May 2008, when the Federal Minimum Wage was $5.85 per hour and was about to increase to $6.55 per hour in July 2008, these same sectors were still the lowest-paying, but their situation (according to Bureau of Labor Statistics data) was:
| Sector | Workers Employed | Median Wage | Mean Wage | Mean Annual |
|---|---|---|---|---|
| Food Preparation and Serving Related Occupations | 11,438,550 | $8.59 | $9.72 | $20,220 |
| Farming, Fishing, and Forestry Occupations | 438,490 | $9.34 | $11.32 | $23,560 |
| Personal Care and Service Occupations | 3,437,520 | $9.82 | $11.59 | $24,120 |
| Building and Grounds Cleaning and Maintenance Occupations | 4,429,870 | $10.52 | $11.72 | $24,370 |
In 2006, workers in the following 13 individual occupations received, on average, a median hourly wage of less than $8.00 per hour:
| Occupation | Workers Employed | Median Wage | Mean Wage | Mean Annual |
|---|---|---|---|---|
| Gaming Dealers | 82,960 | $7.08 | $8.18 | $17,010 |
| Waiters and Waitresses | 4,312,930 | $3.14 | $4.27 | $11,190 |
| Combined Food Preparation and Serving Workers, Including Fast Food | 2,461,890 | $7.24 | $7.66 | $15,930 |
| Dining Room and Cafeteria Attendants and Bartender Helpers | 401,790 | $7.36 | $7.84 | $16,320 |
| Cooks, Fast Food | 612,020 | $7.41 | $7.67 | $15,960 |
| Dishwashers | 502,770 | $7.57 | $7.78 | $16,190 |
| Ushers, Lobby Attendants, and Ticket Takers | 101,530 | $7.64 | $8.41 | $17,500 |
| Counter Attendants, Cafeteria, Food Concession, and Coffee Shop | 524,410 | $7.76 | $8.15 | $16,950 |
| Hosts and Hostesses, Restaurant, Lounge, and Coffee Shop | 340,390 | $7.78 | $8.10 | $16,860 |
| Shampooers | 15,580 | $7.78 | $8.20 | $17,050 |
| Amusement and Recreation Attendants | 235,670 | $7.83 | $8.43 | $17,530 |
| Bartenders | 485,120 | $7.86 | $8.91 | $18,540 |
| Farmworkers and Laborers, Crop, Nursery, and Greenhouse | 230,780 | $7.95 | $8.48 | $17,630 |
In 2008, only two occupations paid a median wage less than $8.00 per hour:
| Occupation | Workers Employed | Median Wage | Mean Wage | Mean Annual |
|---|---|---|---|---|
| Gaming Dealers | 91,130 | $7.84 | $9.56 | $19,890 |
| Combined Food Preparation and Serving Workers, Including Fast Food | 2,708,840 | $7.90 | $8.36 | $17,400 |
According to the May 2009 National Occupational Employment and Wage Estimates, the lowest-paid occupational sectors in May 2009 (when the Federal Minimum Wage was $7.25 per hour) were the following:
| Sector | Workers Employed | Median Wage | Mean Wage | Mean Annual |
|---|---|---|---|---|
| Gaming Dealers | 86,900 | $8.19 | $9.76 | $20,290 |
| Combined Food Preparation and Serving Workers, Including Fast Food | 2,695,740 | $8.28 | $8.71 | $18,120 |
| Waiters and Waitresses | 2,302,070 | $8.50 | $9.80 | $20,380 |
| Dining Room and Cafeteria Attendants and Bartender Helpers | 402,020 | $8.51 | $9.09 | $18,900 |
| Cooks, Fast Food | 539,520 | $8.52 | $8.76 | $18,230 |
External links
- Federal Minimum Wage. United States Department of Labor Wage and Hour Division. As of July 24, 2009.
- Minimum Wages for Tipped Employees. United States Department of Labor Wage and Hour Division. As of January 1, 2010.
- The Minimum Wage: Information, Opinion, Research. Brock Haussamen - Professor Emeritus at Raritan Valley Community College. Last updated July 19, 2010.
- History of the FLSA and Federal Minimum Wage
- U.S. Minimum Wage History. Oregon State University - Wealth and Poverty (Anth 484). Last updated July 26, 2010.