Definitions

wage freeze

Minimum wage in the United States

The federal minimum wage in the United States has been $6.55 per hour since July 24, 2008. Many states and municipalities have minimum wages higher than this (see List of U.S. minimum wages), but some U.S. territories (such as American Samoa) are exempt. Some types of labor are also exempt, and tipped labor must be paid a minimum of $2.13 per hour, as long as the hourly wage plus tipped income result in a minimum of $6.55 per hour.

The last increase on July 24, 2008 was the second of three steps of the Fair Minimum Wage Act of 2007. It was signed into law on May 25, 2007 as a rider to the U.S. Troop Readiness, Veterans' Care, Katrina Recovery, and Iraq Accountability Appropriations Act, 2007. The act will raise the federal minimum wage once more: to $7.25 per hour on July 24, 2009. The bill also contains almost $5 billion in tax cuts for small businesses.

Among those paid by the hour in 2007, 267,000 were reported as earning exactly the prevailing Federal minimum wage. Nearly 1.5 million were reported as earning wages below the minimum. Together, these 1.7 million workers with wages at or below the minimum made up 2.3 percent of all hourly-paid workers, or 0.56 percent of the population of the United States.

Earlier U.S. minimum wages laws

In 1912, Massachusetts organized a commission to recommend non-compulsory minimum wages for women and children. Within eight years, at least thirteen U.S. states and the District of Columbia would pass minimum wage laws. The Lochner era United States Supreme Court consistently invalidated compulsory minimum wage laws. Such laws, said the court, were unconstitutional for interfering with the ability of employers to freely negotiate appropriate wage contracts with employees.

The first attempt at establishing a national minimum wage came in 1933, when a $0.25 per hour standard was set as part of the National Industrial Recovery Act. However, in the 1935 court case Schechter Poultry Corp. v. United States (295 U.S. 495), the United States Supreme Court declared the act unconstitutional, and the minimum wage was abolished.

The minimum wage was re-established in the United States in 1938 (pursuant to the Fair Labor Standards Act, once again at $0.25 per hour ($3.58 in 2006 dollars). It had its highest purchasing value ever in 1968, when it was $1.60 per hour ($9.12 in 2005 dollars). From January 1981 to April 1990, the minimum wage was frozen at $3.35 per hour, then a record-setting wage freeze. From 1 September 1997 through 23 July 2007 - a period of nearly ten years - the federal minimum wage remained constant at $5.15 per hour, breaking the old record.

Congress then gave states the power to set their minimum wages above the federal level. As of July 24, 2007, thirty states had done so. Community organizing efforts initiated by ACORN were responsible for the increases in some states such as Florida, Nevada, and Ohio. Some government entities, such as counties and cities, observe minimum wages that are higher than the state as a whole. One notable example of this is Santa Fe, New Mexico, whose $9.50 per hour minimum wage is currently the highest in the nation, while New Mexico has a minimum wage of $6.50. Another device to increase wages, living wage ordinances, generally apply only to businesses that are under contract to the local government itself.

On November 7 2006, voters in six states (Arizona, Colorado, Missouri, Montana, Nevada, and Ohio) approved statewide increases in the state minimum wage. The amounts of these increases ranged from $1 to $1.70 per hour and all increases are designed to annually index to inflation.

Many politicians in the United States advocate linking the minimum wage to the Consumer Price Index, thereby producing small annual increases rather than the larger hikes that tend to be adopted when legislation to do so is passed. So far, Ohio, Oregon, Missouri, Vermont and Washington have linked their minimum wages to the consumer price index. Beginning April 1, 2007, the minimum wage in Iowa was $6.20, however this increased to $7.25 on January 1, 2008.

Minimum wage jobs rarely include health insurance coverage, although that is changing in some parts of the United States where the cost of living is high, such as California.

Economists' analysis

According to a paper by Fuller and Geide-Stevenson, 45.6% of American economists in the year 2000 agree that a minimum wage increases unemployment among unskilled and young workers, while 27.9% agree with this statement but with provisos. As a policy question in 2006, the minimum wage has to some extent split the economics profession with just under half believing it should be eliminated and a slightly smaller percentage believing it should be increased, leaving rather few in the middle.

Some idea of the empirical problems of this debate can be seen by looking at recent trends in the United States. The minimum wage fell about 29% in real terms between 1979 and 2003. For the median worker, real hourly earnings have increased since 1979, however for the lowest deciles, there have been significant falls in the real wage without much fall in the rate of unemployment. Some argue that a declining minimum wage might reduce youth unemployment (since these workers are likely to have fewer skills than older workers).

Overall, there is no consensus between economists about the effects of minimum wages on youth employment, although empirical evidence suggests that this group is most vulnerable to high minimum wages.

Criticism

Minimum wage laws have been criticized for discouraging economic growth and going against market laws that set the salaries for workers. Empirical evidence suggests that a minimum wage may increase crime, as those workers who are most likely to become unemployed, are already in distressed situations, and may turn to criminial activities out of desperation.,

See also

References

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