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 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?)
• Who are minimum wage earners?
• 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 Act establishes standards for minimum wages, overtime pay, recordkeeping, and child labor. These standards affect more than 135 million workers, both full time and part time, in the private and public sectors” (Wages and Hours Worked, 2016). 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 passed, minimum wage was set at 25 cents per hour and affect approximately 20% of the workforce; today it covers over 84% of the workforce and is set at $7.25 per hour.
Wage-hour legislation was a significant campaign issue in the 1936 Presidential race. The Democrats campaigned for higher wages, the protection of workers and better working conditions. President Roosevelt won the election and continued to advocate developing a bill that would set a prevailing wage and meet other labor standards. Congress met Roosevelt with resistance and continuously rejected the bill. Roosevelt continued to modify the bill, which finally passed by Congress. “Congress then sent the bill to the President. On June 25, 1938, the President signed the Fair Labor Standards Act to become effective on October 24, 1938” (Grossman, N.D.) “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).
The FLSA has been amended twice and minimum wage has increased twenty-two times by twelve Presidents however, it still falls behind inflation rates; minimum wage has not increased since July of 2009. “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).
How and who sets the minimum wage? (Federal or local government?)
New Zealand was the first country to enact 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.
The federal government sets the standard of the minimum prevailing wage; however 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, set at $9.47, while Oregon follows closely with a minimum wage of $9.25 per hour.
All US states but five 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. (Bose, 2017)
Who are minimum wage earners?
In 2015, 78.2 million workers age 16 and older in the United States were paid at hourly rates, representing 58.5 percent of all wage and salary workers. Among those paid by the hour, 870,000 workers earned the prevailing federal minimum wage of $7.25 per hour. About 1.7 million had wages below the federal minimum (4% of women and 3% of men made up this number). Together, these 2.6 million workers with wages at or below the federal minimum made up 3.3 percent of all hourly paid workers (Characteristics of minimum wage workers, 2015). See Exhibit 2 for additional data retrieved from (www.bebusinessed.com).
Is it possible to live on a minimum wage salary?
Minimum wage rates are determined by factors such as poverty threshold, prevailing wage rates as determined by the Labor Force Survey, and other socio-economic factors. The current federal minimum wage is $7.25 per hour, which is equivalent to a full-time minimum wage of $15,080 per year. In 2012, the poverty threshold for a single person was $11,945 and $22,283 for a family of four with two children. Therefore, an individual who works minimum wage for a full year will make enough to live above the poverty line. However, if that individual is the sole earner for a family of four, then that individual is only earning 65% of the federal poverty guideline according to research collected by the UC Davis Center for Poverty Research (“UC Davis”, n.d.). Many workers earning minimum wage still rely on financial assistance from the government, particularly those with more than one child.
A recent article in the Las Vegas Review Journal reported that a single person would have to work approximately 73 hours per week to afford a one -bedroom apartment at the prevailing minimum wage. Andrew Aurand, vice president for research at National Low Income Housing Coalition states “When you look across the country, in only 22 counties out of more than 3,100 counties in the U.S. could a full-time minimum wage worker afford a one-bedroom apartment” (Davidson, 2018). State Sen. Julia Ratti, D-Sparks, chairwoman of an interim legislative committee focused on affordable housing, agreed with Aurand and stated “The only way we will ever fully solve the affordability issue is see growth in wages,” (Davidson,2018).
Exhibit 1 – Minimum Wage Increases over the Years (Bose, Apurva (2017) – Data retrieved from Time.com)
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)
Exhibit 2 – Who are minimum wage earners?
• 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. Five% 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%.
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
Wages and Hours Worked: Minimum Wage and Overtime Pay (2016, December) Retrieved from https://webapps dol.gov/elaws/elg/minwage.htm#who
Grossman, Jonathan (ND.) Fair Labor Standards Act of 1938: Maximum Struggle for a Minimum Wage Retrieved from https://www.dol.gov/general/aboutdol/history/flsa1938
What are the annual earnings for a full-time minimum wage worker? N.D.) Retrieved from https://poverty.ucdavis.edu/faq/what-are-annual-earnings-full-time-minimum-wage-worker
Characteristics of minimum wage workers (2015, April) Retrieved from https://www.bls.gov/opub/reports/minimum-wage/2015/home.html
Davidson, Michael S (2018, June 29) Minimum-wage workers can’t afford Las Vegas rents, study shows Retrieved from https://www.reviewjournal.com/business/housing/minimum-wage-workers-cant-afford-las-vegas-rents-study-shows/