Roughly 3.1 million workers across the United States woke up to a little New Year’s Day present on Thursday, January 1, when increases in the minimum wage took effect in 20 states and the District of Columbia. Thus increasing the total number of states with a minimum wage above the federal wage floor to 29 according the New York Times. This hike is expected to impact 3.1 million of the 3.3 million Americans who earn the minimum wage. The purpose of this paper is to primarily analyze the impact of minimum wage on the labor market and the U.S. economy. It will briefly explore some of its background, its effects and values to individuals and families. In the end, this paper will also cover some of the benefits and drawbacks of minimum wage and why it continues to be a hot debate among individuals, businesses, and politicians.
The minimum wage is a cornerstone of the United States' labor system, and has been a cutting-edge labor law topic among employers and workers alike for decades. However, the United States hasn't always had a minimum wage. Before the minimum wage was introduced following the Great Depression of the 1930s, legislation to protect workers from exploitation did not exist and there was no such thing as a national minimum wage. Because of this lack of regulation, thousands of workers were routinely exploited in sweatshops and factories, forced to work for just pennies a week under extreme conditions.
It was not until 1938 that Congress instituted the minimum wage as part of the Fair Labor Standards Act (FLSA) signed by President Franklin D. Roosevelt. (“History,” 2009). The first federal minimum wage stood at 25 cents an hour. This federal mandate not only eliminated exploitation of thousands of workers but introduced many other worker's protection laws still in effect today, including banning child labor and establishing workplace safety statutes.
Over the past 75 years the minimum wage has varied considerably in inflation-adjusted buying power. It has averaged $8.09 an hour in purchasing power in 2015 dollars. But it has ranged from a low of $4.14 an hour since 1938 to a high of $10.75 an hour in 1968.
The last minimum wage increase occurred in 2007, when Congress raised the rate in steps from $5.15 an hour that year to $7.25 an hour in July 2009. Although it remains over a dollar an hour below its historical high, todays minimum wage somewhat buys more than its historical numbers.
Over the last two decades, Congress has raised the minimum wage typically only during times of healthy economic growth and low unemployment. In 1990, Congress enacted a minimum wage increase as of April of that year when unemployment stood at 5.4 percent. Once more in August 1996, Congress voted to raise it when the rate of unemployment was at 5.1 percent. The next minimum wage hike took place in May 2007 when unemployment was marked at 4.4 percent. Congress has not voted to raise the minimum wage as the unemployment rate remained above 7.5 percent since the end of the Great Depression.
Who earns the minimum wage?
Stereotypes of minimum wage earners range from teenagers holding summer jobs to single mothers struggling to support their family. The truth as should be expected is far from it. However, the Bureau of Labor Statistics (BLS) data sheds light on who actually makes the minimum wage.
Surprisingly, only a few Americans earn the minimum wage as indicated in the chart below, and they make up a smaller share of the workforce than they used to according to DeSilver of the Pew Research Center. Based on the data from the Bureau of Labor Statistics, 1.532 million hourly workers earned the federal minimum of $7.25 an hour in 2013; nearly 1.8 million more earned less than that because they fell under one of several exemptions (tipped employees, full-time students, certain disabled workers and others), for a total of 3.3 million hourly workers at or below the federal