Minimum Wage History of Minimum

Minimum Wage History of Minimum Wage A federal minimum wage was first set in 1938. The Fair Labor Standards Act (FLSA) establishes minimum wage, overtime pay, recordkeeping, and youth employment standards affecting full-time and part-time workers in the private sector and in Federal, State, and local governments (Wage and Hour Division). It is regulated by the U.S. Department of Labor's Employment Standards Administration. At first this act only covered a few transportation and agricultural industries, but was amended later to include service workers and general laborers.

Originally just 25 cents per hour in 1938, the minimum wage has been adjusted 21 times over the years. Generally it's adjusted in short phases over a few years. In recent years, as a three-part step to increase the minimum wage from $5.15 that dated back to 1997, the federal wage was increased July 24, 2007 to $5.85, $6.55 per hour effective July 24, 2008. And it will be increased to $7.25 per hour effective July 24, 2009. It is also required to compensate workers overtime pay after 40 hours of work in a workweek, at one and one-half times the regular rate of pay.

Some states are operating under a state minimum wage that is already higher than the federal minimum wage. In most cases individual states have made larger adjustments to the minimum wage to account for the cost of living in their state and to protect their citizens. Real vs. Nominal Minimum Wage Real minimum wage is the wage adjusted for inflation by the Consumer Price Index and Nominal minimum wage is actual federal minimum wage. Nominal minimum wage values ranged from $0.25/hr in 1938 to $7.25/hr as of July 2009.

The adjustments of these wages to 2009 dollars will show the real value of the minimum wage. Calculated in real dollars, the 1968 minimum wage would have been worth approximately $9.83 in 2007 dollars -- the highest since the birth of minimum wage. The real dollar minimum wage drops during periods that Congress doesn't raise the minimum wage to keep up with inflation. The period from 1997 to 2007 is the longest extended period that the federal minimum wage was not adjusted.

Impacts on Unemployment Heated debates among economists and policymakers about the effects of minimum wage on unemployment and the economy are the same basic arguments today as they were when the Fair Labor Standards Act was passed back in 1938. The arguments against raising the minimum wage usually include claims about job losses and that it will impose higher employment costs on businesses with no measurable income benefits for the wage holder. Some also argue that minimum wage has widespread negative results that go beyond unemployment.

For example, higher minimum wages encourage employers to cut back on training, which would affect long-term advancement within the company in return for a small increase in current income. Supporters of raising the minimum wage argue it will help low-income workers financially. They also argue that the current minimum wage level does not provide an adequate incentive for the presently unemployed to seek work.

Also, they argue that an increase in the minimum wage will have only a very minor impact on jobs lost and the positive affect outweighs the negatives. For example, there is also likely to be a slight spillover effect as businesses adjust other workers' pay rates to maintain wage structures. While economic theory predicts that higher minimum wages will lead to higher unemployment, some findings from recent studies seem to be mixed.

On the low end, researchers have predicted that a ten percent minimum wage hike would only cause a one percent increase in the unemployment rate. On the other end, some researchers have indications that the same ten percent hike in wages would increase unemployment by ten percent. Furthermore, other studies have concluded that minimum wages have no effect or a positive effect on employment. Unions and Minimum Wage Some of the strongest advocates for a higher minimum wage are labor unions.

Organized labor unions have led the fight to raise the minimum wage in six states and to give Democrats control of Congress, in part on a platform of raising the minimum wage. Yet very few union members work for the minimum wage. Only 2.1% of minimum-wage workers belong to a union, versus 12.0% of the overall working population. Nonetheless, labor unions fight passionately for a higher minimum wage (Sherk). When the minimum wage rises, it becomes more expensive to hire unskilled workers.

This makes the decision to employ highly paid and highly skilled workers, instead of unskilled workers, more attractive to businesses, and so businesses want to hire more skilled workers (Sherk). With skilled workers in greater demand, their job opportunities and earnings rise. Unionized workers tend to be more highly paid and highly skilled than the population as a whole and, so, benefit from this effect. Raising the minimum wage could actually raise the earnings of union members who compete with minimum wage workers by 20 -- 40%.

Meanwhile, non-union, low-skilled workers' earnings actually fall due to reduced working hours and fewer job opportunities (Sherk). So the fact that unions are for higher minimum wages is most likely due to self-interest and securing an advantage for their members over low-skilled workers in the workplace. Impact on Poverty Many groups dedicated to fighting poverty, such as the U.S. Conference of Catholic Bishops, support raising the minimum wage.

This makes sense, because many people support raising the minimum wage under the well-intentioned but mistaken belief that it would reduce poverty (Sherk). A study by economists Richard Vedder and Lowell Gallaway shows convincingly that minimum wages, because of inefficient targeting of the poor and unintended adverse consequences on employment and earnings, are ineffective as an antipoverty device.

The report relies on an impressive array of empirical evidence showing that, however one views the data, in the U.S., state and federal minimum wages have not reduced poverty (Gallaway and Vedder). The study also assesses the effects of minimum wages on poverty among full-time workers who worked for an entire year. If minimum wages were to reduce poverty, the effect is most likely to show up among this group.

This is because, if such fully employed workers keep their jobs and maintain their hours, they are likely to see a much larger effect on their annual income than those who are not fully employed (Gallaway and Vedder). However, the study did not find a statistically significant poverty-reducing effect for full-time workers. It is likely that some of these workers saw.