Wilmington University Graduate School
Compensation and Benefits
Minimum wage has been a controversial subject for years and this paper will address the impact minimum wage has on individuals (standard of living), policy makers (how much involvement the government should have in determining a fair wage) and the economy. In addition to the financial impact minimum wage has on these areas, there are also ethical and legal impacts. Ethical concerns relate to those workers in poor paying jobs and their inability to provide decent living conditions for their families. Legal concerns are how do lawmakers determine a prevailing wage during volatile economic times.
This paper will also explore the following topics:
• The history and introduction of minimum wage and the Fair labor Standards Act.
• How and who sets the minimum wage? (Federal or local government?)
• Which groups work for minimum wage?
• Is it possible to live on a minimum wage salary?
History of Minimum Wage
Minimum wage was introduced in 1938 with the passage of the Fair Labors Standard Act (aka FLSA). The introduction of the act marked the first time that employers were legally required to pay workers overtime for certain jobs and required to pay a minimum wage to employees. At the time this law was passed, minimum wage was set at 25 cents per hour; currently minimum wage is set at $7.25 per hour. While the FLSA has been amended twice and minimum wage has increased twenty-two times by twelve Presidents it still falls behind inflation rates. “The minimum wage would have to be increased from $7.25 to $10.55 per hour to make up the value lost to inflation” (Sessions, 2013).
“President Franklin D. Roosevelt saw the act as the second-most-important piece of the New Deal after the creation of Social Security and called it “the most far-reaching, farsighted program for the benefit of workers ever adopted in this or any other country” (Sessions, 2013).
How and who sets the minimum wage? (Federal or local government?)
New Zealand was the first country to pass the first minimum wage laws in 1894 with Australia being second and the UK third. While the United States did not introduce minimum wage laws until 1938, Massachusetts passed a minimum wage law in 1912 however; it only covered women and children.
Most states and even some cities have minimum wages significantly higher than the federal level. San Francisco’s minimum wage, for example, rose to $12.25 on May 1, 2015. On July 1, 2018, minimum wage will rise once more to $15 per hour. Washington has the nation’s highest minimum wage, clocking in at $9.47, while Oregon has a minimum wage of $9.25 in second place. California plans to raise its minimum wage to $10 per hour in 2016.
All US states but 5 have their own minimum wage laws:
Five southern states have no minimum wage laws, including Louisiana, Mississippi, Alabama, Tennessee, and South Carolina.
Four states have a state minimum wage lower than the federal minimum wage, so the federal minimum wage automatically applies (Wyoming, Minnesota, Arkansas, and Georgia) 20 states have laws that lock the state’s minimum wage with the federal minimum wage 21 states and the District of Columbia set their rates higher than the federal minimum wage.
Which groups work for minimum wage?
In 2013, approximately 1.5 million US workers aged 16 and over earned exactly the federal minimum wage of $7.25 per hour. Another 1.8 million US workers received wages below the federal minimum wage. Together, the above two groups make up 4% of all hourly paid workers in America. In 1979, 13% of US wage workers received minimum wage. In 2012, that number had dropped to 5%. The 2013 figure of 4% is an all-time low.
Half of all minimum wage workers are age 25 or younger.
• Approximately 20% of all hourly paid workers are age 25 or younger.
• 20% of employed teenagers earned minimum wage or less, compared to about 3% of workers over age 25.
• 62% of minimum wage workers are women and 38% were men. 5% of women in America earned minimum wage or less, compared to 3% of men.
• 64% of minimum wage workers are part-time workers while 36% are full-time workers.
• 47% of minimum wage workers were in the South while 24% were in the Mid-west, 18% were in the Northeast, and 12% were in the West.
• 64% of minimum wage workers are in service occupations, with 47% in food preparation and related serving professions.
• The two states with the highest percentage of hourly paid workers earning federal minimum wage or lower are Tennessee and Idaho (both at around 7%).
• The states with the lowest percentages of hourly paid workers earning minimum wage or lower are Oregon, California, and Washington, all of which are under 2%.
Is it possible to live on a minimum wage salary?
Another important thing to recognize about minimum wage is its relation to the poverty level. Using a work year of 50, 40-hour work weeks, we can get the annual earnings expected from a minimum wage worker.
In 1968, minimum wage as a percentage of the poverty level was at 99%. In other words, someone working a minimum wage job full-time for one year would be just 1% under the poverty line.
Since 1989, minimum wage as a percentage of the poverty level has averaged around 60%.
Exhibit 1 – Minimum Wage Increases over the Years
October 1938 (FDR): $0.25/hr ($4.15/hr in 2014 dollars)
October 1939 (FDR): $0.30/hr ($5.05/hr)
October 1945 (Truman): $0.40/hr ($5.20/hr)
January 1950 (Truman): $0.75/hr ($7.29/hr)
March 1956 (Eisenhower): $1/hr ($8.61/hr)
September 1961 (Kennedy): $1.16/hr ($8.97/hr)
September 1963 (Kennedy): $1.25/hr ($9.56/hr)
February 1967 (Johnson): $1.40/hr ($9.80/hr)
February 1968 (Johnson): $1.60/hr ($10.75/hr)
May 1974 (Nixon): $2/hr ($9.49/hr)
January 1975 (Ford): $2.10/hr ($9.13/hr)
January 1976 (Ford): $2.30/hr ($9.47/hr)
January 1978 (Carter): $2.65 ($9.51/hr)
January 1979 (Carter): $2.90/hr ($9.34/hr)
January 1980 (Carter): $3.10/hr ($8.80/hr)
January 1981 (Carter): $3.35/hr ($8.62/hr)
April 1990 (Bush): $3.80/hr ($6.82/hr)
April 1991 (Bush): $4.25/hr ($7.30/hr)
October 1996 (Clinton): $4.75/hr ($7.08/hr)
September 1997 (Clinton): $5.15/hr ($7.51/hr)
July 2007 (GW Bush): $5.85/hr ($6.61/hr)
July 2008 (GW Bush): $6.55/hr ($7.12/hr)
July 2009 (Obama): $7.25/hr ($7.80/hr)
Bose, Apurva (2017) – Data retrieved from Time.com
Milkovich, G., Newman, J. M., ; Gerhart, B. (2017). A Pay Model. In Compensation. New York City: McGraw Hill Publication.
Sessions, David (2013, February 15), Five Things You Didn’t Know About the Minimum Wage Retrieved from https://www.thedailybeast.com on June 30, 2018
Bose, Apurva (2017, January 21), “History of Minimum Wage.” History of The US Minimum Wage Retrieved from https://bebusinessed.com/history/history-of-minimum-wage on June 30, 2018