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Explaining the Minimum Wage

Rosalind Gottfried        

Economics

November 27, 2020

Policy

The term minimum wage actually refers to several different things.  There is the federal minimum wage which is the lowest wage that employers can pay their workers unless they are in an exempt category of tipped workers.  Many states have augmented the federal wage with a state or local minimum wage.  Consequently, in referring to the minimum wage, it is imperative to elaborate what standard is the reference point.

The minimum wage was established in 1938 as part of the Fair Labor Standards Act to stabilize the economy and provide for protections for workers.  Currently, the federal minimum wage is $7.25, unchanged since 2009.  This period represents the longest constant amount of the minimum wage in history.  The real value of that wage is down 17% since 2009 and 31% since 1968, when minimum wage was at its peak value. Currently the mid-range for wage earners varies between $23-35 , depending on the industry and the level of education. So the Federal minimum wage number is considerably below the mid-range.

Employers can pay a minimum wage of $2.13 to wait staff and any other person who receives cash tips as long as the combined income equals the federal minimum wage, though this is usually not monitored very thoroughly, or at all.  Although some people make a nice income from tips, others suffer in that their employers are not honoring the law guaranteeing the federal minimum.

In the same time period, 2009-2019, worker productivity has doubled certainly establishing the availability of funds for a more realistic minimum wage. Twenty one states and the District of Columbia have raised their minimum wages to address inflation, along with about two dozen cities and counties.  Wages for low wage workers in those states rose much faster than for those in the 29 states that have not increased the minimum beyond the federal standard.  Georgia and Wyoming have state minimum wages which are $5.15.  In states with a more substantial minimum wage the gender gap has narrowed and women’s wage gains outpaced men’s.  In states with the federal minimum wage, women’s wages gained only 50% of the increase sustained by men.  About 30% of low wage workers earn near the federal minimum wage (between $7.25 and $10.10).  Raising the federal minimum wage is expected to raise the wages of 33.5 to 40 million workers (depending on the source).

Analysis

A living wage, one which would guarantee that a person earns enough to maintain a stable standard of living providing basic needs, would be a lot more than the current standard.  Though many state and localities have increased the minimum wage to, or approaching, $15.00 an hour others have remained stagnant or phased in smaller increases.  The U.S. House of Representatives passed a Raise the Minimum Wage Act, in 2019, which would establish a $15 minimum by 2025.  The wage would also have an annual automatic adjustment based on the middle wage worker so that the gap between low and middle wage earners would be consistent. President-elect Joe Biden supports raising the wage to $15 per hour; eliminating the tipping minimum wage; and basing the minimum wage on the median wage.  If the Senate maintains its Republican majority, the chances of the Senate passing this wage act are slim.  The Pew Research Center survey indicates that two thirds of the American population favors a $15 minimum wage.  Some economists believe that even raising the rate to this level is insufficient to guarantee a minimum standard of living. Many minimum wage workers would remain in poverty, despite the rise in wages.

References

https://www.epi.org/publication/labor-day-2019-minimum-wage/#:~:text=Workers%20earning%20the%20%247.25%20federal,been%20paid%2010%20years%20ago.

https://www.cnbc.com/2020/11/09/the-us-is-closer-to-a-15-federal-minimum-wage-after-biden-win-.html

Resources

https://onefairwage.site/  An organization promoting one fair wage for all workers, including the tipped one.

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