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Minimum Wage: Doing the Bare Minimum

Introduction

Imagine you’re applying to work at a pizza store in your hometown. You fill out your application, and in the interview, your potential boss tells you that the starting pay is one dollar an hour. You have no intention of working for so little, but as you continue your local job hunt, you're met with the same dismal rate of one dollar an hour. You need to earn an income, but the available jobs only offer a wage that won’t afford your daily needs. 

Explanation

If the pizza shop was offering one dollar an hour, but other businesses offered ten dollars, you would just apply elsewhere. The pizza shop would either go out of business or be forced to raise their pay. However, if every business in your town sets their wages at one dollar an hour, workers are forced to accept exploitative wages. To help address this problem, the United States and other countries around the world have implemented a minimum wage. 

Definition

The minimum wage is the lowest legal wage that an employer can pay their workers. In the United States, this wage is initially set by the federal government but some states can choose to raise their minimum wage higher than the federal minimum. 

How It Works

Many of the jobs that pay minimum wage are considered essential for the functioning of society, like grocery store cashiers, janitors, and gas station attendants. Generally, if any business does more than $500,000 in sales or does any business across state lines, they must abide by the federal minimum wage. This wage was set at $7.25 an hour in 2009, but there are exceptions. Employers are only federally mandated to pay full-time students $6.16 an hour. Workers under the age of 20 require only $4.25 an hour during their first 90 days of employment. Workers who receive tips such as food servers and bartenders have a minimum wage of $2.13 so long as their total tips earn them money that places them above a $7.25 an hour rate. Individuals with disabilities can be paid as little as a few cents per hour, and incarcerated individuals have been exempt from the minimum wage law in multiple court rulings, resulting in them having few, if any, wage protections.

To raise the minimum wage, Congress must pass a bill with new federal standards. Since 2009, 29 states have decided to increase their minimum wage, and some cities have raised it even higher. So, while a grocery store worker in Georgia is only ensured $7.25 an hour, the same worker in Colorado must be paid $11.10 an hour, and $16.07 in San Francisco. But, an individual with disabilities or incarcerated in California’s criminal justice system can be paid as little as 12 cents an hour.

History

Prior to 1938 there was no minimum wage law, and many businesses were exploiting this to pay whatever they liked. Factory and textile workers made as little as 10 cents an hour, which is about $1.94 in today’s money. 

President Franklin D. Roosevelt passed the 1938 Fair Labor Standards Act, ensuring a minimum wage of 25 cents an hour, or about $4.86 today. The passage of the FLSA was considered a landmark piece of legislation that shaped the boundaries of the modern work environment.

Over the next few decades, Congress increased the minimum wage multiple times. In 1968, the minimum wage was $1.60 which represented its peak purchasing power at a rate equivalent to about $10.00 in modern money. This purchasing power has steadily decreased to current day. A worker earning minimum wage nowadays makes 25% less than their counterparts in the late 1960s. 

Why Care?

The minimum wage of $7.25 is often described as a poverty wage. A worker earning $7.25 an hour working a full 40 hour week would only earn about $15,000 a year, well below the federal poverty level of $26,500 for a family of four. This is assuming the worker doesn’t fall into any of the before mentioned exceptions where they would make even less.

In 2021, a nonpartisan research group called The Congressional Budget Office (CBO) conducted a study on the effects of potentially increasing the minimum wage to $15. The CBO found that a minimum wage boost from the preexisting $7.25 to $15 would raise 900,000 Americans out of poverty and increase wages of 17 million workers. 

However, the CBO also found an estimated 1.4 million jobs could be eliminated over the following ten years as a result. This potential rise in unemployment is the most common concern against raising the minimum wage. People fear that companies faced with increasing worker pay might either fail or lay off employees. Opponents also point to potential inflation and unbalanced purchasing power as workers in states with minimum wage laws already at or near $15 will benefit less. Finally, some argue that minimum wage jobs are meant to be an entry point to higher paying roles and are fundamentally not designed to be a full-time career. 

Proponents of raising the minimum wage argue that no one working a full-time job, let alone a job labeled essential, should fall beneath the poverty line and be unable to make ends meet. Today’s economy is more productive than ever, and raising the minimum wage is a way of combating the US’s significant rise in wealth inequality. Proponents argue that if businesses cannot afford to pay their workers a living wage, these employers should not be allowed to stay in business. 

The minimum wage is a complex topic with passionate supporters on both sides of the debate. Understanding the minimum wage will help inform decisions on where we think the future of labor in the United States should stand and what value we assign workers in society.

Think Further

  1. What do you think are the most persuasive arguments for and against raising the minimum wage? 
  2. What are other strategies and ideas you can think of that empower workers other than raising the minimum wage? 
  3. What are three ways your lifestyle would change if you went from making $290 a week (under a $7.25 minimum wage) to 600 dollars a week (under a $15 minimum wage)?  

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  1. Rosenberg, Eli. “CBO Report Finds $15 Minimum Wage Would Cost Jobs But Lower Poverty Levels”. Washington Post, 2021, https://www.washingtonpost.com/business/2021/02/08/minimum-wage-hike-15-an-hour-by-2025-would-result-14-million-unemployed-nonpartisan-congressional-budget-office-says/. 
  2. “Why The U.S. Needs A $15 Minimum Wage: How The Raise The Wage Act Would Benefit U.S. Workers And Their Families”. Economic Policy Institute, 2021, https://www.epi.org/publication/why-america-needs-a-15-minimum-wage/.
  3. Wolfson, Paul J. and Belman, Dale, 15 Years of Research on U.S. Employment and the Minimum Wage (December 10, 2016). Tuck School of Business Working Paper No. 2705499, Available at SSRN: https://ssrn.com/abstract=2705499 or http://dx.doi.org/10.2139/ssrn.2705499
  4. The Editorial Board. “Opinion | Reality Check For A $15 Minimum Wage”. WSJ, 2021, https://www.wsj.com/articles/reality-check-for-a-15-minimum-wage-11612827957?cx_testId=3&cx_testVariant=cx_2&cx_artPos=4#cxrecs_s.
  5. Autor, David H., Alan Manning, and Christopher L. Smith. 2016. “The Contribution of the Minimum Wage to US Wage Inequality over Three Decades: A Reassessment.” American Economic Journal: Applied Economics, 8 (1): 58-99.