Minimum Wage: Its Purpose, History, and $15 Wage Battle

The U.S. Minimum Wage Is $7.25/Hour: How Do You Compare?

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The minimum wage is the lowest legal wage that companies can pay their workers. The purpose of minimum-wage laws is to prevent employers from exploiting workers. The minimum wage should provide enough income to afford a living wage, the amount needed to provide enough food, clothing, and shelter. The U.S. national minimum wage is $7.25 per hour as of January 2022.

Many states and cities have their own minimum wage. Employees receive whichever is higher, the federal or local minimum wage. California has the highest state rate at $15 ($14 for employers with under 26 employees) as of January 1, 2022.

Purpose of the Minimum Wage

Although the minimum wage is intended to protect workers from exploitation, it hasn't kept pace with inflation. Workers who earned a minimum wage in 2017 were paid around 27% less than their counterparts were paid almost 50 years before, according to the Economic Policy Institute. The minimum wage would have been $11.62 in 2017 if it had been raised since 1968 at the same growth rate as average wages of typical U.S. workers.

Instead, the minimum wage translates to $15,080 a year at 40 hours per week for 52 weeks. That's more than the federal poverty level for a single person. but not for a family of two. A worker would qualify for federal poverty assistance if they were trying to support a family by earning minimum wage.

How much rent can Americans afford on the minimum wage? It could be enough to rent a studio apartment in a rural area or college town in most states, but minimum wage workers may often live with roommates in some states and in many large cities.

History of the Minimum Wage

The Fair Labor Standards Act (FLSA) set the first U.S. minimum wage in 1938. President Franklin D. Roosevelt passed it as part of the New Deal to protect workers during the Great Depression. The Depression had caused wages to drop to pennies a day for many. Roosevelt set the minimum wage at $0.25/hour. Fierce competition during the Depression forced companies to slash pay and extend hours just to stay in business.

Another major issue was child labor. According to a U.S. Department of Labor (DOL) Children's Bureau survey from that time, 25% of 449 American children who were surveyed were working 60 hours a week or more. Public interest grew around the issue, and President Roosevelt called a special session of Congress in 1937 to address matters in a lead-up to establishing the minimum wage.

“The exploitation of child labor and the undercutting of wages and the stretching of the hours of the poorest paid workers in periods of business recession has a serious effect on buying power," Roosevelt said. The FLSA not only established the minimum wage, but it banned oppressive child labor and limited the workweek to 44 hours as a result.

The minimum wage was raised by the U.S. Congress several more times. It reached $1/hour by 1956. But the FLSA applied primarily to workers in interstate commerce. Congress amended the Act to include workers in retail and service companies, as well as employees in local transportation, construction, and gas stations, in 1961. The FLSA included state and local government employees, along with workers in service industries such as laundries, hotels, and farms five years later. 

Racial Discrimination Issues

Critics and scholars have argued that minimum-wage laws created issues of racial discrimination and inequality long before the first federal minimum wage was passed. Congress passed the Davis-Bacon Act in 1931, which required contractors and subcontractors performing on federally funded or assisted contracts to pay their laborers and mechanics “prevailing wages.”

But those who are critical of the Act say it was passed with the specific intent to ​​favor white workers in white-only unions over non-unionized black workers for scarce jobs during the Depression. 

The AFL-CIO, the U.S.’s largest federation of unions, argues that the Davis-Bacon Act was anything but “racist” and that it was intended “to fight back against the worst practices of the construction industry and ensure fair wages for those who build our nation.”

Legislation and Action

The most recent amendment to the FLSA was the Fair Minimum Wage Act of 2007. It set these scheduled increases:

  • Before July 24, 2007: $5.15 per hour
  • From July 24, 2007 to July 23, 2008: $5.85 per hour
  • From July 24, 2008 to July 23, 2009: $6.55 per hour
  • On or after July 24, 2009: $7.25 per hour

In 2014, President Obama signed an executive order that said all government contractors must comply with a $10.10 minimum.

Democrats have long supported raising the minimum to $15 an hour, but the effort has faced hurdles in Congress. Members are concerned that it would force many small businesses to lay off workers to keep their overall labor costs in line, a sentiment that reflects a 2019 Congressional Budget Office (CBO) report. Raising the minimum wage to $15 an hour by 2025 would take 1.3 million people out of poverty, according to the report, but it would also cost 1.3 million workers their jobs.

What Is the Current Minimum Wage?

While some states have implemented their own $15 minimum-wage legislation, the federal minimum wage remains at $7.25.

President Joe Biden made the $15 minimum wage a priority during election season and continued to push for a federal mandate once he took office. Democratic lawmakers introduced the Raise the Wage Act of 2021 to more than double the federal minimum wage to $15 by 2025 just after Biden took office. 

A similar bill passed in the House of Representatives in 2019, but it stalled in the Republican-controlled Senate.

Inaction on the minimum wage issue continues in Congress, but President Biden issued an executive order to raise the minimum wage for contract workers to $15.

Arguments for the $15 Minimum Wage

The majority of U.S. adults (62%) favored raising the minimum wage to $15 an hour, according to an April 2021 Pew Research Center study. In particular, 89% of black adults and approximately three-quarters of Latinx and Asian Americans are in favor of the hike. There are five main advantages of the $15 minimum wage.

Boosts Productivity

Workers who can cover the cost of living have better morale. They're more productive if they have a decent standard of living.

Reduces Income Inequality

A higher minimum wage can provide more incentive to work while reducing income inequality, the large disparity in how income is distributed among individuals, groups, populations, social classes, or countries due in part to structural racism or sexism. 

Testifying before the House of Representatives Committee on Education and Labor when the Raise the Wage Act was first proposed in 2019, Ben Zipperer of the Economic Policy Institute argued that the national minimum wage of $7.25 “hurts women as well as black and Hispanic workers the most.”

Zipperer noted that 56% of those who would benefit from a $15 minimum wage in 2024 are women, despite women making up only 48% of the total U.S. workforce. He added that 40% of all black workers would receive a wage increase, along with 34% of Hispanic workers.

To show the potential value of even an incremental minimum-wage increase, a 2019 study from the National Women’s Law Center reported that “for women working full time in states with a minimum wage of $10 per hour or more, the wage gap is 34[%] smaller."

Spurs Economic Growth

A higher minimum wage better reflects the actual cost of living. Workers who are able to earn more than the cost of living contribute more to the economy, because they have more money to spend and are less likely to default on debts. That increases demand and business revenue and lowers things like consumer debt, healthcare debt, and evictions.

Promotes Education and Self-Improvement

Workers who have more time and money can then invest in their educations, which can further increase their productivity while improving the attractiveness of the country's labor pool. A more educated workforce can also increase innovation and the number of small businesses.

Improves Employee Retention

Finally, minimum-wage laws benefit individual businesses. Workers are less likely to leave to find a higher-paying job, thus reducing turnover and expensive retraining costs.

Arguments Against the $15 Minimum Wage

Small business organizations, like the National Federation of Independent Business (NFIB), are among the groups that oppose the minimum wage increase to $15. According to an NFIB ballot from early 2021, 92% of small businesses say that a $15-per-hour minimum wage “would be harmful to Main Street and its job opportunities.” 

Here are some more specific arguments from the opposition. 

Reduction of Private-Sector Employment

A $15 minimum wage proposed in the Raise the Wage Act would reduce private-sector employment by over 1.6 million jobs, according to the NFIB Research Center. It would produce a cumulative U.S. loss of more than $2 trillion in real economic output. 

Increase in Labor Costs

Minimum-wage laws raise businesses' labor costs, which typically take up a large portion of their budgets. Businesses tend to hire fewer workers to keep their total labor costs the same when the government requires them to pay more per worker. That, in turn, increases the unemployment rate.

It hits workers with income at or below the federal poverty threshold the hardest, because they must compete for fewer jobs. Some smaller companies may not be able to operate with fewer workers, and they may be forced to declare bankruptcy instead.

Small Business and Industry Job Loss

Based on simulation results from the Business Size Insight Module (BSIM), a multi-region economic forecasting and policy analysis model, businesses with fewer than 100 employees are forecast to lose nearly 700,000 jobs, or about 43% of all private-sector jobs lost by 2029. Meanwhile, major industries, including retail, administrative, and support services, are forecast to experience large job losses. Job loss offsets increased wages for workers who are able to keep or find jobs in these industries.

Penalizes Labor-Intensive Industries

The minimum wage penalizes companies that are labor-intensive. It rewards those that are in capital-intensive industries by default. It can shift the very fabric of the country's economic base over time.

Increases Outsourcing

Minimum-wage laws may increase job outsourcing. Companies may decided to move their facilities to countries where labor costs are lower.

Increases Unemployment and Poverty

Higher minimum-wage laws may not reduce the country's poverty. They help the workers who have jobs, but they increase unemployment. Research shows that experienced workers receive higher pay and increased job opportunities, while less-experienced workers see a loss in job opportunities, according to a study of Seattle's minimum-wage increase by the National Bureau of Economic Research.

Increases the Cost of Living

Finally, minimum wages could raise the cost of living in some areas. A higher minimum wage allows workers to pay more for housing. Landlords could raise rents, creating inflation, as a result.

Who Makes Minimum Wage?

The percentage of hourly paid workers earning the federal minimum wage or less went down from 1.9% in 2019 to 1.5% in 2020, according to the Bureau of Labor Statistics. That's well below the 13.4% in 1979, when this data was first collected. In total, 1.1 million workers earned wages at or below the federal minimum wage of $7.25 in 2020.

Those who earn minimum wage or less tend to be young. Workers under age 25 represented just under 20% of hourly paid workers, but they made up about 48% of those who were paid the federal minimum wage or less. Among workers who were paid hourly rates, 2% of women and 1% of men were paid at or below the federal minimum wage.

Service occupations had the highest percentage of hourly paid workers earning at or below the federal minimum wage, at about 5%. The industry with the highest percentage of hourly workers earning at or below the federal minimum wage was leisure and hospitality, at 8%.

Does Anyone Make Less Than Minimum Wage?

Approximately 1.1 million workers earn less than the minimum wage, because they fall under one of several exemptions. Here are some examples:

  • Employers who hire full-time students in retail or service stores, agriculture, or colleges and universities can obtain a certificate from the DOL allowing the student to be paid 85% of the minimum wage.
  • High-school students who are age 16 or older and who are enrolled in vocational education classes may be paid 75% of the minimum wage if their employer obtains a certificate from the DOL.
  • According to 1996 FLSA amendments, those under age 20 may be paid no less than $4.25/hour by their employer in the first 90 calendar days after they are first employed.
  • Workers with disabilities can receive a special minimum wage if the disability lowers their productivity.
  • Tipped employees are paid $2.13/hour if that hourly pay and tips combined make up the equivalent of the federal minimum wage. If not, then the employer is supposed to make up the difference but in many cases may not.
  • A business that makes less than $500,000 a year can pay less than minimum wage unless it is involved in interstate commerce or is a hospital, school, or government agency.

Check the state minimum-wage laws for these worker categories. The state minimum wage will take precedence over the federal minimum-wage law if the amount is higher.

The Wage and Hour Division of the DOL enforces the U.S. minimum-wage law. The FLSA Handy Reference Guide provides information on the minimum wage, overtime pay, and other standards affecting all types of workers. 

State Minimum Wages

A total of 26 states have indicated that they will raise their minimum wages effective 2022.

Five states—Alabama, Louisiana, Mississippi, South Carolina, and Tennessee—have not adopted a state minimum wage. Georgia and Wyoming have a minimum wage below $7.25. The federal minimum wage of $7.25 applies in those states. 

California has the highest minimum-wage requirement at $15 for businesses with 26 or more employees, and at $14 for all others. It will increase to $15 in 2023 and then will mum wabe adjusted annually, based on a set formula and number of employees.

Massachusetts, Connecticut, Oregon, New Jersey, New York, and Washington are the only other states with a limit of $13 or more per hour in at least some areas effective 2022. Some cities, like San Francisco, New York City, and the District of Columbia, also impose city-level regulations mandating a $15/hour minimum wage or higher.

Seven states—Alaska, Florida, Minnesota, Montana, Ohio, South Dakota, and Vermont—automatically increase their wages based on the cost of living. The U.S. Department of Labor lists the up-to-date minimum-wage laws for each state. It also provides a history of the minimum wage for each state since 1968.

Do Other Countries Have a Minimum Wage?

Many countries have a national minimum wage. Most of them review and adjust it annually, depending on the cost of living. The U.S. minimum wage is lower than those of most other countries around the world, even though its cost of living is higher.

  • United Kingdom: Varies by age. For example, 8.91 pounds per hour for workers ages 23 and over, or approximately U.S.$12
  • Ireland: 10.50 euros per hour, or approximately U.S.$12, for ages 20 and over; varies from 7.35 euros, depending on age, for younger workers
  • European Union countries: Twenty-one of the EU's 27 members had national minimum wages as of July 2021. The laws apply to all employees. The wages range from a low of 332 euros per month in Bulgaria to a high of 2,202 euros per month in Luxembourg. These are roughly equivalent to a range of U.S.$376 to U.S.$2,495 in January 2022. Several EU countries have a minimum wage higher than that of the U.S., including the Netherlands, Ireland, France, Germany, Belgium, and Luxembourg.
  • Thailand: Minimum wage ranges from 313 to 336 Baht/day, depending on the province. This was about U.S.$9.29/day to U.S.$9.97/day in January 2022.
  • Australia: AUS$20.33/hour equivalent to roughly U.S.$14.62/hour in January 2022, varying by age and job status

U.S. Trade Partners With No National Minimum Wage

Each Canadian province and territory sets its own level instead of a national minimum wage. They range from a low of C$11.75/hour or U.S.$9.29/hour in New Brunswick to C$16.00/hour or U.S.$12.66/hour in Nunavut, as of January 2022.

A Mexican commission sets the minimum wage for the highest-paid zone, Zona Libre de la Frontera Norte (ZLFN). That wage is 185.56 pesos, or $9.10, per day. The minimum wage is 123.22 pesos, or $6.04, per day for the rest of the country.

China has no national minimum wage, because the cost of living varies so much across the country. Each province sets its own level instead, with general guidance given by the national government. Shanghai's minimum monthly wage is the country's highest at 2,590 RMB/month or US$400/month, while Beijing has the highest hourly wage at 25.3 RMB/US$3.90.

The minimum wage for an unskilled worker with is 618 rupees/day or U.S.$8.33/day in cities in India, such as Delhi. There is no national minimum wage.

Frequently Asked Questions (FAQs)

How many people earn the minimum wage?

In 2020, 1.1 million workers earned the minimum wage or lower in the United States, or 1.5% of all hourly paid workers.

Can you support a family on minimum wage?

A person working 40 hours per week for minimum wage would earn $15,080 before taxes. That is below the federal poverty line for a family of two or more people. It is also lower than the average cost of a one-bedroom apartment in the United States in 2020, which was $1,621 per month, or $19,452 per year.

How long has the minimum wage stayed the same?

The federal minimum wage has been $7.25 per hour since July 2009. Due to inflation, workers would have needed to be paid $9.57 in December 2021 to have the same purchasing power as minimum-wage workers in 2009.

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