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Originally Published: 8/9/2006

THE MINIMUM WAGE

By The Issue Wonk

 

Background

 

The Federal Minimum Wage rates are set under the Fair Labor Standards Act (FLSA).  (U.S. Code Title 29, Chapter 8)  The first minimum wage was set in 1938 at 25 cents per hour.  In 1961 the Act was amended to extend coverage to employees of large retail and service enterprises and to local transit, construction, and gasoline service station employees.  1966 amendments extended coverage to state and local government employees of hospitals, nursing homes, and schools, and to laundries, dry cleaners, and large hotels, motels, restaurants, and farms.  Separate standards were set for farm and nonfarm labor, but this was dropped in 1978.

 

The Federal Minimum Wage applies to covered, nonexempt employees as defined by the FLSA.  (U.S. Code, Chapter 8, § 203)  Many states have their own minimum wage laws, but if an employee is subject to both federal and state minimum wage laws, the higher of the two wages applies.  There are exceptions to the minimum wage law:  “workers with disabilities, full-time students, employees who receive tips, student-learners, and people younger than 20 during the first 90 days of their employment.”1

 

Adjustments to the minimum wage have occurred fairly regularly.  The longest period of time that has elapsed without an increase was during the 1980s when the rate went unchanged from January, 1981 until April, 1990 – a period of 9 years, 3 months.  The last time the minimum wage was raised was in 1997 to $5.15 per hour,2  a period of almost 9 years.

 

The Issue

 

Currently the minimum wage of $5.15 an hour, based on a 40-hour work week, 52 weeks a year (no paid vacation), results in an annual gross wage (before paying taxes) of $10,712.  This amount is more than $5,000 below the poverty level for a family of 3.  And it’s almost $10,000 below the poverty level for a family of 4.3  “The minimum wage now equals only 31% of the average wage for private sector, nonsupervisory workers.  This is the lowest share since at least the end of World War II.  Since September 1997, the purchasing power of the minimum wage has deteriorated by 20%.  After adjusting for inflation, the value of the minimum wage is at its lowest level since 1955.” 4

 

While the lowest wage workers in our economy have, in the last 9 years, suffered a reduction in purchasing power by 20%, Congress has raised its own salary for non-leadership members by $31,600, or 23.65%.  (See Congressional Salaries.)  In addition, corporate profits have received the largest share of national income than at any time since 1967.  “If corporate profits’ share of GDI [gross domestic income] had remained stable at the average level that characterized the run of the entire last business cycle, there would be almost $400 billion available today for increased labor compensation.”5  Finally, Congress has reduced the estate tax burden 9 times.6

 

The Proposed Increase

 

Who would benefit from an increase?

 

A lot of people would benefit from a minimum-wage increase, and not just those who work at minimum-wage jobs.  There are millions of people who work for wages just above the hourly minimum who also would benefit.

 

11% of the work force, or an estimated 14.9 million workers, would receive an increase in their hourly wages if the minimum-wage rate were raised from $5.15 to $7.25 by 2008.

 

Among workers likely to benefit from the wage increase, 59% are women.  9% are single parents.

 

A wage increase benefits low-income families.  Among families with children, the low-wage worker contributes, on average, more than half of the family’s earnings.  46% of such workers contribute 100% of their family’s earnings.1

 

A minimum wage increase is supported by the majority of Americans:  72% of Republicans, 91% of Democrats, and 87% of Independents support raising the minimum wage to $7.15.7  So, why has Congress not raised it?  The answer is that it is opposed by some small business groups and some economists who believe the wage increase will result in a reduction in available jobs.  Recent research, however, has shown that this is probably not true.

 

The Center for American Progress in Ohio conducted research that compared the “performance of small businesses in the 39 states that accepted the federal minimum wage before 2003 to the 12 states (including the District of Columbia) that had minimums above the federal level in January, 2003. . . The study found that between 1997 (when more states began having higher minimums) and 2003 . . .” the states with the higher minimums had higher rates of small business growth.8  And Card & Krueger looked at the 1992 increase in New Jersey’s minimum wage, the 1988 increase in California’s minimum wage, and the 1991 increase in the federal minimum wage.  They found that “increases in the minimum wage leads to increases in pay, but no loss in jobs.”9

 

The Status of an Increase

 

Several attempts have been made to increase the minimum wage.  Most recently a bill was put forward to accomplish this, but it also included a permanent repeal of the Estate Tax.  In other words, the lowest wage-earners in our society cannot have an increase unless the wealthiest among us get yet another tax decrease.  The bill was defeated in the Senate.

 

_______________

 

1 A Primer on the Federal Minimum Wage, NPR, August 1, 2006.

 

2 Federal Minimum Wage Rates Under the Fair Labor Standards Act, prepared by the U.S. Department of Labor, Employee Standards Administration, Wage and Hour Division.  Click here for pdf copy.

 

3 The 2006 HHS Poverty Guidelines.  Department of Health and Human Services

 

4 Bernstein, Jared & Shapiro, Isaac.  (June 20, 2006)  Buying Power of Minimum Wage at 51 Year Low:  Congress Could Break Record for Longest Period Without an Increase.  Center on Budget and Policy Priorities.

 

5 Another Stellar Quarter for Profit Growth:  Highest Share Since 1967.  (May 25, 2006)  Economic Policy Institute.

 

6 Aron-Dine, Aviva.  (August 3, 2006)  Since Last Minimum Wage Increase, Congress has Reduced Estate Tax Burdens Nine times.  Center on Budget and Policy priorities.

 

7 Dimock, Michael  (April 19, 2006)  Maximum Support for Raising the Minimum.  Pew Research Center for the People & the Press.

 

8 Burton, John & Hanauer, Amy.  (May, 2006)  Good for Business:  Small Business Growth and State Minimum Wages.  Center for American Progress, Policy Matters, Ohio.

 

9 Card, David & Krueger, Alan B.  (1995)  Myth and Measurement:  The New Economics of the Minimum Wage.  Princeton University Press.  (See review.)

 

 

© The Issue Wonk, 2006

 

 

 

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