20. Minimum Wage

The federal government has established a minimum wage, or the least dollar amount that may be paid hourly workers, that applies to all workers in all fifty states who are engaged in interstate commerce or the production of goods for interstate commerce (and closely allied enterprises) or are employed by an enterprise engaged in interstate commerce or the production of goods for commerce. Businesses engaged in “interstate commerce” are defined as those with potential to come in contact with interstate travelers or consumers in other states.

Thus the federal minimum wage does not apply to all occupations. Domestic workers are not covered in many situations; fishermen, employees of certain small newspapers, babysitters, and agricultural seasonal workers in small family farms are some of the common exemptions from the federal minimum wage law. Others who are exempt include those in seasonal employment, such as at amusement parks or seasonal recreation centers, and in “exempt” occupations, such as managers, salesmen, or administrators who are not paid on an hourly basis. Further, if a local business does not qualify as participating in interstate commerce, it, too, would be exempt. These exempt occupations are covered by state minimum wage laws that can be higher or lower than the federal minimum wage which is now $5.15 per hour. However, if the state minimum wage is higher than the federal minimum wage and the employee is subject to both state and federal law, the higher rate will apply.

Subminimum wages are hourly rates below the established minimum wage that may be paid for a limited time to learners, apprentices, messengers, student workers, and those employed in occupations not ordinarily given to full-time workers. The subminimum wage permits businesses to be able to continue to hire certain types of workers in certain nontraditional, “convenience” occupations.

Overall, there is little variation among states in regard to the minimum wage. Since the federal government has established a national minimum wage covering virtually all occupations, most states have simply adopted that wage as their standard, though a few have established higher rates and a few lower. In the last few years, six states that had minimum wages set lower than the federal provision have revised theirs to match the federal rate, and seven have bettered the federal rate. The most dramatic rise in the minimum wage is seen in Georgia, which recently raised its rate to $5.15 from $3.25! Surprisingly, one state (Kansas) still has a rate that is less than the federal rate. Five states have taken no action at all, perhaps determining that the market is the best regulator of wages. That is, if the wage is too low, the employer will either get no applicants or ones with no experience and no skills. Generally, the higher the wage, the better the applicant pool. However, there are circumstances in which workers may be taken advantage of either out of desperation or ignorance. This is precisely why the minimum wage exists.

Minimum Wage

BIBLIOGRAPHY

Historically, the idea of a minimum wage was to allow a full-time worker to earn enough to buy the basic necessities of life. Following the Great Depression of the 1930s and World War II, watershed legislation established minimum wages around the world, most notably the Fair Labor Standards Act (FALSA) of 1938 in the United States and the Wage Council Act of 1945 in the United Kingdom. FALSA, for instance, established a minimum wage of 25 cents per hour when it was formed; that became $5.85 in 2007, and will increase to $7.25 by 2009. The value of this minimum, however, declines over time due to inflation or productivity growth. The problem with the minimum wage is its interference with the labor-market mechanism, creating ambiguous influences on employers, workers, and teenagers (and even more so on nonwhite teenagers) for whom the market-clearing wage is lower than the minimum wage. In the case of extreme poverty, the argument that policy authorities should pass a legal minimum wage through legislation is not in dispute, but disagreement over a minimum wage abounds in the areas of efficient allocation of resources, full employment, effect on income, and alternative ways to combat poverty (Stigler 1946).

Economists study the effect of minimum wages relative to the market equilibrium wages. If the demand for labor, N_d , is not equal to the supply of labor, N_s , then wages change. At equilibrium, the change in the wage rates, w, over time, t, is dw /dt = f (N_d –N_s ) = 0. One implication of the equilibrium is that a laborer is paid a wage, w, equal to the marginal product of labor (MPL). If a minimum wage is binding, such as for the unskilled, young, less educated, and part-time workers, then the minimum wage would exceed the equilibrium wage, creating unemployment. The unemployed may transfer to industries that are not covered by the minimum wage, thus decreasing wage and productivity there. One possibility is that employers may then substitute more automation, or skilled labor for low-skilled labor as wages increase. Another factor is that competition between the covered and the uncovered sectors of the labor market tends to equilibrate the wages between the two sectors. Thus, the MPL of workers still employed in the covered industry will tend to rise to where w = MPL (Hicks 1948, p. 179). As Martin Bronfenbrenner asserts: “If they were better fed and clothed and housed, and better cheered as well, by higher wages, their physical efficiency might rise in the same proportion as the wage rate” (Bronfenbrenner 1943, p. 82).

Economists emphasize empirical work to assess the net possible effect of minimum wages. Several studies by David Card and Alan Krueger held that minimum wages increase the employment in fast-food firms such as Burger King, KFC, Roy Rogers, and Wendy’s. At the firm level, Card and Krueger (1994) studied the increase in minimum wages in New Jersey, the highest minimum wage in the nation as of April 1, 1992, against no change in the minimum wage in Pennsylvania. They found that employment increased in New Jersey by 0.6 workers, and declined in Pennsylvania by 2.1 workers, a difference-indifferences of 2.7 workers. Similar findings were made for firm-level data in Texas, and for state data in California (Card and Krueger 1995). An attempt by David Neumark and William Wascher (2000) to replicate the Card and Krueger finding used employment data reported by establishments rather than survey data. They found that the job gain in New Jersey could be zero or slightly negative. The technology of the fast-food firms suggests that employers may need a fixed number of employees per grill or cash register, and therefore will not reduce employment when minimum wages increase, but that they may be discouraged from opening new franchises, thus lowering potential employment.

The analysis of the amount of the unemployment can be stated in elasticity of demand terms. If the elasticity is less than one, increase in wages will increase payroll, enhancing benefits to workers. The elasticity of–1 is the standard labor market assumption, which leads to the expectation that unemployment will fall in equal proportion to wage increases. Earlier empirical studies by Charles Brown, Curtis Gilroy, and Andrew Kohen (1982; 1983) indicated that the effect of minimum wages on employment was slightly negative or insignificant, indicating an elasticity of demand close to zero.

In the Keynesian world, “the customary treatment of involuntary unemployment and unemployment equilibrium frequently is based upon rigidity of money wage rate” (Darity and Horn 1983, p. 725). The post-Keynesians are well known for defending the wage-rigidity assumption. John Maynard Keynes’s (1973, p. 54) correspondence with the classical economist Arthur Cecil Pigou revealed a rigid labor supply curve, indicating rigid wages for some level of employment. Keynes, however, eased up on the wage-rigidity assumption in chapter 19 of his General Theory of Employment, Interest, and Money (1936). According to Axel Leijonhufvud (1968, p. 37) the assumption of a minimum wage is maintained by Keynesians, who assume competitive conditions make wage rigidity into a special case for this model. Don Patinkin (1948, p. 545) argued that rigidity in the Keynesian system is possible under static modeling of Keynesian economics, but rigidity is not an essential Keynesian element in a more dynamic setting.

Modern macroeconomic discussion involves models dealing with wage-setting, where wages are set as a markup on expected price, and with price-setting, where prices are set as a markup on expected wages. Unemployment then depends on the solution of the joint equations Price Setter: p –w^e = β ₀–β ₁u, (β ₁ ≥ 0), and Wage Setter: w^e –p = γ ₀–γ ₁u, (γ ₁ > 0), where w is money wage, u is unemployment, p is price, e is expected, and the Greek letters are parameters to be estimated (Layard, Neckell, and Jackman 1994, pp. 19–20). When price and wage expectations materialize, real wages can be analyzed against employment. Any factors that contribute to wage push, γ ₀, such as the minimum wage, raise the unemployment rate.

SEE ALSO Economics, Labor; Expectations; Markup Pricing; Poverty; Sticky Wages; Unemployment; Unemployment Rate; Wages

BIBLIOGRAPHY

Bronfenbrenner, Martin. 1943. Minimum Wages, Unemployability, and Relief: A Theoretical Note. Southern Economic Journal 10 (July): 52–59.

Brown, Charles, Curtis Gilroy, and Andrew Kohen. 1982. The Effect of the Minimum Wage on Employment and Unemployment. Journal of Economic Literature 20 (June): 487–529.

Brown, Charles, Curtis Gilroy, and Andrew Kohen. 1983. Time-Series Evidence on the Effect of the Minimum Wage on Youth Employment and Unemployment. Journal of Human Resources 18 (Winter): 3–31.

Card, David, and Alan B. Krueger. 1994. Minimum Wages and Employment: A Case Study of the Fast-Food Industry in New Jersey and Pennsylvania. American Economic Review 84 (September): 772–793.

Card, David, and Alan B. Krueger. 1997. Myth and Measurement: The New Economics of the Minimum Wage. Princeton, NJ: Princeton University Press.

Darity, William A., and Bobbie L. Horn. 1983. Involuntary Unemployment Reconsidered. Southern Economic Journal 49, no. 3 (January): 717–733.

Hicks, John. [1932] 1948. The Theory of Wages. New York: Peter Smith.

Keynes, John Maynard. 1936. The General Theory of Employment, Interest, and Money. London: Macmillan.

Keynes, John Maynard. [1973] 1987. The General Theory and After, Part II: Defence and Development, ed. Donald Moggridge. London: Macmillan.

Layard, Richard, Stephen Nickell, and Richard Jackman. 1994. The Unemployment Crisis. Oxford: Oxford University Press.

Leijonhufvud, Axel. 1968. On Keynesian Economics and the Economics of Keynes: A Study in Monetary Theory. Oxford: Oxford University Press.

Modigliani, Franco. 1980. Collected Papers of Franco Modigliani. Vol. 1, ed. Andrew Abel. Cambridge, MA: MIT Press.

Neumark, David, and William Wascher. 2000. Minimum Wages and Employment: A Case Study of the Fast-Food Industry in New Jersey and Pennsylvania, Comment. American Economic Review 90 (December): 1362–1269.

Patinkin, Don. 1948. Price Flexibility and Full Employment. American Economic Review 38 (September): 543–564.

Stigler, George J. 1946. Economics of Minimum Wage Legislation. American Economic Review 36, no. 3. (June): 358–365.

Lall Ramrattan

Michael Szenberg

Minimum Wage

The Fair Labor Standards Act of 1938 (FLSA) is in a sense the basic law controlling employment and compensation issues in the United States. FLSA mandates that a minimum wage be paid, but the act classifies employees into two broad classes: those who are covered by the law because they are paid by the hour and those who are exempted because they are paid a salary. From this provision of the law we have the concept of "exempt" and "non-exempt" employees. All matters pertaining to the minimum wage are applicable only to "non-exempt" employees, i.e. those covered by the legislation. In addition to the federal minimum wage, state minimum wage rates are also in place.

RATES AND COVERAGE

The last upward revision of the federal rate took place in October 1996 as part of the Small Business Job Protection Act (SBJA) of 1996. The act increased the rate from $4.75 an hour to $5.15 per hour. The rate has not changed since. In early 2006, six states (Alabama, Arizona, Louisiana, Mississippi, South Carolina, and Tennessee) had no minimum wage. Fifteen states had higher minimum wages than the U.S. as a whole: Alaska, California, Connecticut, Delaware, Florida, Hawaii, Illinois, Maine, Massachusetts, Minnesota, New Jersey, New York, Oregon, Washington, and Wisconsin. The highest wage was in Oregon, $7.63 an hour; in 2006 Connecticut had a $7.40 per hour minimum wage to be raised to $7.65 in 2007. The rest of the states had the same minimum wage as the national rate. Under the federal rules, a non-exempt worker is entitled to receive the highest minimum wage available in the place where he or she works. Changes in state law are monitored by the U.S. Department of Labor and may be consulted at http://www.dol.gov/esa/minwage/america.htm.

Exemptions

Estimates of the number of people earning the minimum wage are difficult to establish in part because exemptions to the law exist for certain classes of worker—some of whose earnings may actually be higher than the minimum wage although, officially, they make less. For example, family members of the employer may be paid less than the minimum wage. Also exempted are employers of the disabled if the disability affects the person's ability to work. Such individuals are often employed in sheltered workshops and environments. Full time students are not covered; students and apprentices part of whose work is learning need not be paid the minimum wage. Finally and most importantly, employees earning tips are exempted under the presumption that tips will make up the difference.

Statistics

Reporting on data for 2004 from the Current Population Survey, the Bureau of Labor Statistics (BLS) found that 73.9 million Americans earned hourly pay, representing 59.8 percent of all workers earning wages and salaries. Of this total 520,000 earned exactly $5.15 an hour—but some 1.483 million other hourly workers reported earning less. The two categories combined (2 million) were 2.7 percent of hourly workers.

BLS pointed out that about 350,000 of those in the "under minimum" category reported earning exactly $5.00 an hour, which may have reflected mere rounding down from $5.15 by survey respondents. If so, the total number earning less would have been around 1.13 million people in 2004. The number tallies reasonably well with other BLS data which show that the largest category of those earning less than minimum wage (1.04 million individuals) worked in food preparation and serving occupations. The second largest such category were people working in sales and office occupations (104,000). Taking the "at minimum or below" category, the leading industrial category was "leisure and hospitality," employing 62 percent of all such employees. Of all those earning minimum wage or below, 51 percent were between 16 and 24 years of age, and nearly half of those were between 16 and 19. Part-time workers represented 62 percent of the total.

The data thus show that minimum wage workers are heavily skewed toward youth, part time work, and the restaurant/food, service/hotel sectors; in the aggregate they represent a small portion of the hourly work force.

BIBLIOGRAPHY

"Debating the Minimum Wage." Economist. 3 February 2001.

"Minimum Wage: A Hike Won't Hurt." Business Week. 9 October 2000.

Ramey, Joanna, and Dana Lenetz. "Democrats Promise Extensive Battle for Minimum Wage Hike." Footwear News. 19 February 2001.

U.S. Department of Labor. "Characteristics of Minimum Wage Workers: 2004." Available on http://www.bls.gov/cps/minwage2004.htm#1. Retrieved on 18 April 2006.

U.S. Department of Labor. "Minimum Wage Laws in the States—March 1, 2006" Available on http://www.dol.gov/esa/minwage/america.htm. Retrieved on 18 April 2006.

                                             Darnay, ECDI

MINIMUM WAGE

The minimum hourly rate of compensation for labor, as established by federal statute and required of employers engaged in businesses that affect interstate commerce. Most states also have similar statutes governing minimum wages.

Along with a requirement for overtime pay and restrictions on child labor, the minimum-wage law is one of the most significant, substantive obligations created more than 50 years ago by the fair labor standards act of 1938 (FLSA) (29 U.S.C.A. §§ 201 et seq.). The FLSA culminated a long struggle for state and federal protective legislation for workers that had begun during the nineteenth century.

The original campaign for minimum-wage legislation in the United States began at the state level and resulted from growing public concern about the prevalence of sweatshops—workhouses where recent immigrants, women, and young children were paid substandard wages. Proponents of minimum-wage legislation appealed to society's sense of obligation to act through its elected officials to ensure an adequate standard of living for all working citizens.

In 1912, Massachusetts, an industrial state, was the first state to enact minimum-wage legislation. The momentum continued, and by 1920 13 states, Puerto Rico, and the District of Columbia had enacted minimum-wage programs. The Great Depression moved even more states to enact protective minimum-wage legislation, and by 1938 25 states had some form of minimum-wage law. In creating minimum wage legislation, the states generally used three minimum wage models. The Massachusetts model established a wage commission that recommended voluntary minimum-wage rates based on what commission members determined was the best combination of a "living wage" for employees and the "financial condition" of the employer's business. The next model established a similar wage commission but disregarded the financial conditions of the employer, made the minimum wage compulsory, and established sanctions for non-compliance. The third law, the Utah model, established a flat rate of minimum compensation for all covered workers.

Despite the success of state legislatures in creating minimum-wage laws, state supreme courts and, ultimately, the U.S. Supreme Court rejected as unconstitutional any legislation that interfered with an employer's freedom to contract with employees over wages.

Under the leadership of President franklin d. roosevelt, Congress passed the national industrial recovery act of 1933 (NIRA) (June 16, 1933, ch. 90, 48 Stat. 195). NIRA granted the president authority to establish minimum-wage and maximum-hour standards for all private-industry workers. Its legal basis was the federal government's power to regulate interstate commerce. The U.S. Supreme Court, however, rejected the NIRA's legal basis as unconstitutional in ALA Schechter Poultry v. United States, 295 U.S. 495, 55 S. Ct. 837, 79 L. Ed. 1570 (1935). In fact, from 1923 in Adkins v. Children's Hospital, 261 U.S. 525, 43 S. Ct. 394, 67 L. Ed. 785, to 1937 in Morehead v. New York ex rel. Tipaldo, 298 U.S. 587, 56 S. Ct. 918, 80 L. Ed. 1347, the Court consistently ruled against the constitutionality of all minimum-wage legislation.

During his second administration, President Roosevelt worked with members of Congress to create a modified version of the labor provisions of the NIRA, and in 1937 the FLSA was introduced. Although national business lobbies and agricultural interests vigorously fought the proposed legislation—even organized labor did not support it—Congress passed the FLSA, and it was signed into law on June 25, 1938. Referring to the FLSA the night before signing the bill into law, President Roosevelt declared, "Except perhaps for the social security act, it is the most far-reaching, the most far-sighted program for the benefit of workers ever adopted." In a landmark decision in 1941 (United States v. Darby, 312 U.S. 100, 61 S. Ct. 451, 85 L. Ed. 609), the U.S. Supreme Court found the FLSA constitutional:

[I]t is no longer open to question that the fixing of a minimum wage is within the legislative power and the bare fact of its exercise is not a denial of due process under the Fifth more than under the Fourteenth Amendment.

The minimum-wage law has evolved significantly since the Court declared it constitutionally sound in United States v. Darby. The federal minimum wage remains the same until Congress passes a bill to raise it and the president signs the bill into law. The minimum wage started at 25¢ per hour, and Congress has increased it 18 times. Since the law was enacted, increases to the minimum wage have been signed into law by Presidents harry s. truman, dwight d. eisenhower, john f. kennedy, lyndon b. johnson, richard m. nixon, jimmy carter, george h. w. bush, and bill clinton. The increases in the minimum wage have been sporadic. For example, the wage rose five times in the inflationary 1970s but was unchanged for the last nine years of the 1980s. In 1989, the FLSA was amended to raise the minimum wage in two steps: from $3.35 to $3.80 per hour on April 1, 1990, and from $3.80 to $4.25 per hour on April 1, 1991.

Every time Congress considers legislation to increase the minimum wage, it must ponder what constitutes a living wage—a wage that is sufficient to provide a worker with food, clothing, and shelter. Along those lines, the congressional research service estimated that the minimum wage would have to rise to $6.75 per hour in 1996 to equal the purchasing power that it represented in 1978.

Congress most recently amended the minimum-wage law with the Minimum Wage Increase Act of 1996 (Pub. L. No. 104-188, sec. 2104(a), 110 Stat. 1228 [amends sec. 206]). Congress increased the minimum wage to $4.75 per hour effective October 1, 1996 and increased it to $5.15 per hour effective September 1, 1997.

The minimum wage is the most direct and definitive measure to guarantee workers a living wage, but the FLSA (and thus its minimum-wage provisions) does not protect all employees. In 1988, of the approximately 110 million wage and salary earners in the United States, the FLSA did not cover about eight million workers because of coverage limits, nor another 28 million workers because of exemptions.

The minimum-wage law can be enforced by employees themselves, by the secretary of labor, or by the attorney general. Under section 216(b) of the FLSA, employees can file suit in federal or state court to enforce their rights to minimum wages and overtime compensation. Employees also can seek redress if employers retaliate against them for trying to enforce their rights under the FLSA. The secretary of labor can enforce the act on behalf of employees under sections 216(c) and 217 by either filing a wage suit on behalf of the employees or by seeking an injunction.

If a suit by either the employees or the secretary of labor is successful, the FLSA authorizes recovery of any unpaid minimum wages and/or overtime compensation; with some exceptions, the injured party may be able to recover an equal amount in liquidated damages, as well. In addition, employees who win FLSA suits may be awarded attorneys' fees. For repeated or willful violations of the minimum-wage provisions, the secretary is authorized to assess civil penalties, subject to administrative review, of up to $1,000 per violation (29 U.S.C.A. § 217(e)).

Finally, the attorney general has the authority to file criminal actions for FLSA violations, although this authority has rarely been used.

Although the FLSA is the most significant federal wage statute, a number of other laws impose minimum-wage obligations on entities that perform work for the federal government. For example, the davis-bacon act (40 U.S.C.A. §§ 276a–276a–5) applies to contracts in excess of $2,000 to work on federal buildings or other

public works; the Walsh-Healey Act (41 U.S.C.A. §§ 35–45) applies to employers that provide materials, supplies, and equipment to the United States under contracts exceeding $10,000; and the Ser vice Contract Act (41 U.S.C.A. §§ 351–358) applies to contracts in excess of $2,500 to provide services to the federal government. These statutes all require contracting entities to pay workers the prevailing wage in the locality.

As of 2003, the federal minimum wage has remained at $5.15 per hour for non-exempt employees. However, in 11 states, particularly those in northwestern and northeastern parts of the United States, the state minimum wage is higher than that of the federal government. Under the FLSA, if a state's minimum wage is higher, then that rate applies to employees working in that state.

The following 11 states provide a higher minimum wage than the federal standard (with the applicable hourly rate in parentheses), according to information from the U.S. labor department: California ($6.75); Oregon ($6.90); Washington ($7.01); Maine ($6.25); Vermont ($6.25); Massachusetts ($6.75); Delaware ($6.15); Connecticut ($7.10); Rhode Island ($6.15); Alaska ($7.15); and Hawaii ($6.25).

The law in a few states still provides a minimum wage that is lower than the federal rate, although the latter continues to apply. Rates in American Samoa are established by a special industry committee, which determines rates for particular industries, rather than all covered employees. Like the states, an employer in American Samoa may choose to set rates at a higher level than the standard set by the committee.

further readings

Levitan, Sar A., and Richard A. Belous. 1979. More Than Subsistence: Minimum Wages for the Working Poor. Baltimore: Johns Hopkins Univ. Press.

Linder, Marc. 1990. "The Minimum Wage as Industrial Policy: A Forgotten Role." Journal of Legislation 16.

Norlund, Willis J. 1988. "A Brief History of the Fair Labor Standards Act." Labor Law Journal 39.

Quigley, William P. 1996. "'A Fair Day's Pay for a Fair Day's Work': Time to Raise and Index the Minimum Wage." St. Mary's Law Journal. 27.

Waltman, Jerold L. 2000. The Politics of the Minimum Wage. Urbana: University of Illinois Press.

Wright, Russell O. 2003. Chronology of Labor in the United States. Jefferson, N.C.: McFarland & Company, Inc.

cross-references

Child Labor Laws; Employment Law; Labor Law; National Recovery Administration; New Deal.

Minimum Wage

What It Means

The minimum wage is the lowest monetary amount that employees are permitted to pay their workers. More than 90 percent of the world’s nations have minimum wage laws. In the United States the laws always represent the minimum wage in dollars per hour, but in other places it may be represented as a certain amount of money per day or per month. Retail outlets, restaurants, hotels, and cleaning agencies are the types of companies in the United States that are most likely to employ workers at minimum wage. Approximately one-third of the 11 million American workers earning minimum wage are between the ages of 16 and 19.

Since its inception in the United States, the minimum wage has been raised several times. Beginning at $.25 per hour in 1938, the minimum wage did not rise until 1950, when it climbed to $.75 per hour. The rate went up again in 1956 to $1.00, and by 1968 it was $1.60. The figure rose steadily through the 1970s, reaching $2.30 per hour in 1976. At the beginning of the 1980s, minimum wage topped $3.00, and by 1995 it was up to $4.25. Set at $5.15 in 1997, the national minimum remained the same for 10 years before legislation calling for a two-dollar-per-hour increase was passed by Congress in 2007.

There is much debate about minimum wage laws, both about what the minimum figure should be and about whether or not these laws actually benefit low-wage earners. Those in favor of minimum wage laws see the matter as a question of social justice. All workers, these people claim, have a right to earn enough money to provide for their own basic needs of food, clothing, and shelter. Furthermore it is necessary that government mandate a certain wage because, left to themselves, most private employers would not pay their workers enough to live on properly. People who argue against minimum wage laws believe that such laws raise unemployment. They reason that if employers are required to pay more to each individual employee, there will be fewer total jobs available.

When Did It Begin

The first national minimum wage laws were passed in 1896 in New Zealand. That same year a minimum wage law was established in Victoria, Australia. The Australian legislation did not set a national minimum, however; rather, the law was an amendment to the Australian government’s Factories Act calling for for a wages board to set a minimum wage for the six industries that paid the lowest wages in the country. The wages board was originally created as a four-year experiment but was renewed in 1900 and then made permanent in 1904, by which time the minimum wage statute applied to more than 150 industries.

By 1910 in the United States, the minimum wage was a controversial political issue. The state of Massachusetts issued a document setting a noncompulsory minimum wage for women and children in 1912, but employers in Massachusetts were not legally required to honor the recommendation. The public debate continued, and by 1920, 13 states had minimum wage laws. These laws were often short-lived, however, because at the time, whenever a minimum wage case came before the U.S. Supreme Court, the law was overruled on the grounds that such statutes interfered with private employers’ rights to negotiate wages with their employees. In 1933 the National Industrial Recovery Act included a measure that set the first national minimum wage at $.25 an hour, which is equivalent to about $3.25 in today’s dollars. This law was overturned by the Supreme Court in 1935, but in 1938 the Fair Labor Standards Act reset the national minimum wage at $.25 an hour. Since that time the United States has maintained a national minimum wage, and the figure has been raised sporadically to account for price increases.

More Detailed Information

Comparisons between the U.S. and Other Countries

The rate of minimum wage pay at any given time is often a deceptive figure because the dollar amount per hour or per month is not an accurate reflection of a worker’s buying power. For example, minimum wage earners had considerably more buying power in the United States in 1968 than they do now. In fact, in the history of American wage laws, the minimum wage had its strongest purchasing value in 1968, when it was just $1.60 an hour. In that year $1.60 was the equivalent of $9.25 in 2005 dollars. Even though the minimum wage had risen fairly steadily since its inception, the purchasing power of the minimum wage figure had declined more than 30 percent by 2007. This meant that minimum wage earners were able to afford fewer and fewer things. Their wages may have gone up but at a slower rate than the prices of things they needed to buy.

Sometimes raising the minimum wage does not achieve the desired effect. The price of goods and services tends to increase with increases in minimum wage, so that necessities, as well as workers’ leisure time, cost more money. Wage improvements may also decrease the number of hours available to each worker because employers are often less willing to pay for labor at higher prices; therefore when the minimum wage goes up, there tend to be fewer full-time low-wage jobs available. In addition, each hour spent not working costs idle workers in lost revenues. For example, if the minimum wage is $3 per hour, then each hour during the workday during which workers are idle costs them $3 in unearned revenue. If the minimum wage goes up to $3.50, workers lose $3.50 per hour when they are forced to stay home because an employer has cut back their hours.

Many countries in the world have more generous minimum wage laws than the United States. For example, in France and Ireland the respective minimum wages of 8.27 and 8.30 Euros per hour equal about $10.80 per hour in U.S. currency. Likewise, in the U.K. the minimum wage of 5.15 pounds per hour (approximately $10 per hour in U.S. dollars) is almost twice the rate in the United States. These countries also monitor the relationship between the minimum wage and the cost of living more closely than the United States does. In France, the minimum wage is updated every year, sometimes at a rate higher than the rate of inflation (the rise in prices of goods and services). In 2004 inflation in France registered at 2 percent, but the minimum wage went up by 5 percent. As of 2007 Ireland and England were set to raise wages to a figure amounting to more than $11 per hour in American dollars.

American minimum wage figures compare favorably to those in other parts of the world, however. For instance, in Brazil workers earn a minimum of only $165 per month. In Russia they earn a little more than $40 per month, and in Pakistan the minimum wage is about the equivalent of $66 per month. The People’s Republic of China has a more complex minimum wage structure. Full-time workers earn a monthly minimum wage, while part-time workers earn an hourly minimum wage. Furthermore some provinces are permitted to set their own minimum wages, with workers in these areas sometimes earning as little as $.25 per day. While minimum wage figures in the developing world are certainly low compared to those in the United States and Europe, it must also be remembered that the economies in these areas are significantly different than those in the fully industrialized nations. Still, people earning such low wages are living in dire poverty. Of all the nations in the world, minimum wages in Japan, which vary according to industry and region, most closely resemble American figures. In most areas and occupations in Japan, the minimum wage amounts to between $40 and $45 per day, roughly what an American worker makes in eight hours at $5.15 per hour, the U.S. minimum wage from 1997 until it changed to $5.85 in July 2007.

Debate over Minimum Wage

Minimum wage legislation has long been a subject of intense debate. Those who favor the minimum wage and believe it should be raised, at least in accordance with the rising cost of living, maintain that decent pay is a matter of social justice: all workers have a right to earn enough money to provide for their own basic needs of food, clothing, and shelter; as such, proponents argue, a minimum wage must be legislated because private employers cannot be depended upon to uphold such standards voluntarily. For employers, increased labor costs will be offset by happier, more productive employees and lower employee turnover (which means lower hiring and training costs). Proponents of minimum wage increases also suggest that higher wages will be good for the economy as a whole. Minimum wager earners will have more spending power and better access to bank loans and credit, both of which will stimulate the economy. They will also be more able to pay for health care and less likely to depend on government welfare programs, both of which will reduce the burden they might otherwise place on the economy.

Those who oppose the minimum wage and increases to it, on the other hand, invoke basic economic “common sense,” as well as the law of supply and demand, to support their contention that government interference in the bargaining process between workers and employers does more harm than good to low-wage earners and the economy as a whole. At the heart of this argument is the idea that an increase in the minimum wage amounts to an artificial price increase in labor. This overvaluation will necessarily drive down demand for labor; that is, it will lead to increased unemployment. For employers a mandatory wage increase amounts to an increase in the cost of production without any promise of an increase in output; workers will suddenly be paid more but will not necessarily work harder or more efficiently (indeed, one of the premises of this argument is that worker productivity will be unaffected by a wage increase). In order to offset the cost increase of paying each worker more, employers will not be able to hire as many workers, or they will need to fill their lowest positions with more productive workers. Other cost-containing alternatives include substituting employees with machines or outsourcing the work to cheaper labor overseas. In any of these scenarios, the logic goes, those who will lose their jobs or be unable to find work are the least skilled workers with the fewest employment options to begin with.

Another way for employers to offset the wage increase is to cut back on other benefits they extend to their employees, such as paid sick days, health benefits, shift meals (a common benefit of restaurant work), or other workplace amenities, all of which amounts to zero gain for employees. Increases in labor costs might also result in higher prices for the goods and services the employees produce. Such price would increase the cost of living for everyone in the economy.

Recent Trends

In the United States one debate about low-paying employment is focused on the disparity between the minimum wage and a proper living wage, which is the amount of money one needs to make in a 40-hour work week to meet basic expenses and to experience some recreation. In early 2007 many economists and activists believed that national minimum wage laws did not provide enough for workers to achieve an acceptable standard of living.

Individual states are permitted to set minimum wage laws at figures higher than the federal standard, and, as of 2007, 29 states had done so in an effort to bring the minimum wage closer to the living wage of the area. For example, California, New York, and Florida have set their state minimum wage higher than the $5.85 per hour federal standard. Within some states, there are cities and counties that have set the minimum wage higher than the rest of the state. One example is Sante Fe, New Mexico, where the minimum wage is at a national high of $9.50 per hour, while the rest of the state abides by the federal minimum.

Another trend in individual states is to tie the minimum wage to inflation. This means that the minimum wage is reset every year to match the rise in the cost of living. As of 2006 six states had set adjustable minimum wage laws so that low-wage earners could continue to meet expenses as prices rose.