This paper challenges the conventional view that the federal minimum wage effectively protects low-income workers in the United States. Beginning with a historical overview of the Fair Labor Standards Act of 1938, the paper surveys decades of economic research to argue that the minimum wage has not substantially reduced poverty rates, reduces employment opportunities for low-wage workers, and disproportionately harms the groups it was designed to protect — including teenagers, African Americans, unskilled workers, and residents of low-wage regions. The paper also highlights research showing that higher minimum wages are associated with reduced school enrollment among teenagers, further undermining long-term economic mobility for vulnerable populations.
Many people regard the minimum wage in the United States as a central feature of the social safety net. According to this conventional wisdom, the minimum wage especially protects low-skilled and under-educated Americans from being exploited in the labor market. It assures a baseline for what employers can legally pay, and thereby supports the economy as a whole. It is said to encourage skill development and create conditions under which workers may gain experience that will allow them to obtain higher-paying jobs. These arguments are loudly proclaimed by interest groups whenever Congress considers raising the minimum wage. But this conventional wisdom is wrong. Decades of research clearly demonstrate that the existence of a minimum wage does little to help the very people it is intended to protect.
The minimum wage was initially created through the Fair Labor Standards Act (FLSA) in 1938. At that time, the minimum wage was set at $0.25 per hour. Since then, the rate has been increased more than 20 times to its current rate of $7.25. States are permitted to enact different minimum wage rates considered more appropriate for local costs of living. For example, several states have enacted minimum wage laws that set base pay above $8.00 per hour and tie future changes to inflation rates; Wyoming historically has had one of the lowest state minimum wages (U.S. Department of Labor).
Jobs that include tip compensation, such as restaurant service work, are exempt from the standard minimum wage. Other exemptions exist for younger workers and temporary employment, but the vast majority of American workers are subject to the FLSA. At the time of its original passage in 1938, the law was hailed as a tool for the "elimination of labor conditions detrimental to the maintenance of the minimum standards of living necessary for health, efficiency and well-being of workers" (FLSA, 1938).
If the FLSA and its subsequent rate increases were genuinely protecting the working class, we might expect to see decreased poverty rates and increased standards of living for those at the bottom of the employment ladder. That has not been the case. In order to fully explore the impacts the minimum wage has had on those who receive it, it is important first to define who those recipients are. In 1998, 17% of all workers were paid minimum wage. Of those, 27% were teenagers and 62% were women (Turner, 1999). The majority of minimum wage earners were working part-time, defined as fewer than 20 hours per week (Turner, 1999). Of all minimum wage workers, only 15% were living at or below the poverty line (Kersey, 2004).
From this evidence, it is reasonable to conclude that the minimum wage has its greatest impact on youth and women, that most of those individuals work only part-time, and that most earn above the federally defined lowest income threshold.
"Research showing harm to minorities and low-wage regions"
"Minimum wage discourages education and harms teen employment"
Joint Economic Committee, Congress of the United States. (1995). 50 Years of Research on the Minimum Wage. Washington, D.C.
Kersey, Paul. (2004). The Economic Effects of the Minimum Wage. Testimony before the House of Representatives, Small Business Committee, Subcommittee on Workforce, Empowerment, and Government Programs.
Krugman, Paul. (2009, December 16). Would cutting the minimum wage raise employment? The New York Times. Op-Ed.
Neumark, David. (1995). Effects of Minimum Wages on Teenage Employment, Enrollment and Idleness. Retrieved from http://www.epionline.org/studies/
Neumark, David. (2007). Minimum Wage Effects in the Post-Welfare Reform Era. Retrieved from
Turner, M. (1999). [Minimum wage research synthesis]. Referenced throughout.
U.S. Department of Labor, Wage & Hour Division. (2010). Retrieved from http://www.dol.gov/WHD/
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