The minimum wage in the United States is set by US labor law and a range of state and local laws. Employers generally must pay workers the highest minimum wage prescribed by federal, state, and local law. Since July 24, 2009, the federal government has mandated a nationwide minimum wage of $7.25 per hour. As of January 2017, there were 29 states with a minimum wage higher than the federal minimum. From 2014 to 2015, nine states increased their minimum wage levels through automatic adjustments, while increases in 11 other states occurred through referendum or legislative action. In real terms, the federal minimum wage peaked near $10.00 per hour in 1968, using 2014 inflation-adjusted dollars.
Beginning in January 2017, Massachusetts and Washington now have the highest state minimum wages. There is a racial difference for support of a higher minimum wage with most black and Hispanic individuals supporting a $15.00 federal minimum wage, and 54% of whites opposing it. In 2015, about 3 percent of White, Asian, and Hispanic or Latino workers earned the federal minimum wage or less. Among Black workers, the percentage was about 4 percent.
History
20th century
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, with pressure being placed on state legislatures by the National Consumers League in a coalition with other women's voluntary associations and organized labor. The United States Supreme Court of the Lochner era consistently invalidated compulsory minimum wage laws. Advocates for these minimum wage laws hoped that they would be upheld under the precedent of Muller v. Oregon, which upheld maximum working hours laws for women on the grounds that women required special protection that men did not. However, the Court did not extend this principle to minimum wage laws, considering the latter as interfering with the ability of employers to freely negotiate wage contracts with employees.
In 1933, the Roosevelt administration made the first attempt at establishing a national minimum wage, 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 US Supreme Court declared the act unconstitutional, and the minimum wage was abolished. In 1938, the minimum wage was re-established pursuant to the Fair Labor Standards Act, once again at $0.25 per hour ($4.78 in 2017 dollars). In 1941, the Supreme Court upheld the Fair Labor Standards Act in United States v. Darby Lumber Co., holding that Congress had the power under the Commerce Clause to regulate employment conditions.
The 1938 minimum wage law only applied to "employees engaged in interstate commerce or in the production of goods for interstate commerce," but in amendments in 1961 and 1966, the federal minimum wage was extended (with slightly different rates) to employees in large retail and service enterprises, local transportation and construction, state and local government employees, as well as other smaller expansions; a grandfather clause in 1990 drew most employees into the purview of federal minimum wage policy, which now set the wage at $3.80.
Legislation, 21st century
In 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 were designed to annually index to inflation. Some politicians in the United States have advocated linking the minimum wage to the Consumer Price Index, thereby increasing the wage automatically each year based on increases to the Consumer Price Index. So far, Ohio, Oregon, Missouri, Vermont and Washington have linked their minimum wages to the consumer price index. Minimum wage indexing also takes place each year in Florida, San Francisco, California, and Santa Fe, New Mexico.
The federal minimum wage in the United States was reset to its current rate of $7.25 per hour in July 2009. Some U.S. territories (such as American Samoa) are exempt. Some types of labor are also exempt: employers may pay tipped labor a minimum of $2.13 per hour, as long as the hour wage plus tip income equals at least the minimum wage. Persons under the age of 20 may be paid $4.25 an hour for the first 90 calendar days of employment (sometimes known as a youth, teen, or training wage) unless a higher state minimum exists. The 2009 increase was the last of three steps of the Fair Minimum Wage Act of 2007, which was signed into law as a rider to the U.S. Troop Readiness, Veterans' Care, Katrina Recovery, and Iraq Accountability Appropriations Act, 2007, a bill that also contained almost $5 billion in tax cuts for small businesses.
In April 2014, the U.S. Senate debated the Minimum Wage Fairness Act (S. 1737; 113th Congress). The bill would have amended the Fair Labor Standards Act of 1938 (FLSA) to increase the federal minimum wage for employees to $10.10 per hour over the course of a two-year period. The bill was strongly supported by President Barack Obama and many of the Democratic Senators, but strongly opposed by Republicans in the Senate and House. Later in 2014, voters in the Republican-controlled states of Alaska, Arkansas, Nebraska and South Dakota considered ballot initiatives to raise the minimum wage above the national rate of $7.25 per hour, which were successful in all 4 states. The results provided evidence that raising minimum wage has support across party lines.
Since 2012, a growing protest and advocacy movement called "Fight for $15", initially growing out of fast food worker strikes, has advocated for an increase in the minimum wage. On March 27, 2014, Connecticut passed legislation to raise the minimum wage from $8.70 to $10.10 by 2017, making it one of about six states to aim at or above $10.00 per hour. In 2014 and 2015, several cities, including San Francisco, Seattle, Los Angeles, and Washington passed ordinances that gradually increase the minimum wage to $15.00. In 2016, New York and California passed legislation that would gradually raise the minimum wage to $15 in each state.
As of 2017, recent legislation passed in multiple states that raised the minimum wage a certain amount in a certain time. California is set to raise their minimum wage to $15.00/hour by January 1, 2023. Colorado is set to raise their minimum wage from $9.30/hour to $12/hour by January 1, 2020, raising $0.90 per year. Seattle passed legislation in 2015 for a raise in minimum wage. For employers of 500 or more employees without heath benefits, the minimum wage rose to $15.00/hour in 2017. For employees with heath benefits, the minimum wage will raise to $15.00/hour by 2018. For smaller employees, the $15.00/hour wage takes effect at different times. Seattle is one of the first cities with a plan that after the minimum $15.00/hour wage takes effect, they increase minimum wage by a certain percentage every year based on inflation. New York has also recently passed legislation to increase their minimum wage to $15.00/hour over time, certain counties and larger companies are set on faster plans than others. As there have only been a few places mentioned, cities and states across the United States are putting in place certain legislation to increase the minimum wage for minimum wage workers to a livable wage. Only time will reveal any effects on the economy and number of jobs in those cities and states.
Local ordinances
On June 2, 2014, the City Council of Seattle, Washington was the first city to pass a local ordinance to increase the minimum wage of the city to $15.00 per hour, which will be phased in over seven years, to be fully implemented by 2021. Numerous cities have followed Seattle's example since. San Francisco is expected to become the first U.S. city to reach a minimum wage of $15.00 per hour on July 1, 2018. New York City's minimum wage will be $15.00 per hour by the end of 2018. The minimum wage in Los Angeles and Washington, D.C., will be $15.00 per hour in 2020. A growing number of California cities have enacted local minimum wage ordinances, including Los Angeles, San Francisco, Oakland, Berkeley, Emeryville, Mountain View, Richmond, and San Jose.
In September 2014, the Los Angeles City Council approved a minimum salary for hotel workers of $15.37 per hour. In April 2016, The Los Angeles Times reported that there is an exemption for unionised workers, and interviewed longtime workers at unionised Sheraton Universal who make $10.00 per hour, whereas non-union employees at a non-union Hilton a few feet away make at least the $15.37 mandated by law for non-unionised employees. Similar exemptions have been adopted in San Francisco, San Jose, Oakland, and Santa Monica.
On August 18, 2015, the El Cerrito City Council directed city staff to draft a local minimum wage ordinance based on a template provided by a coalition for a county-wide minimum wage effort. The details are not final, but the Council discussed an initial increase of roughly 28â€"36% ($11.52 â€" $12.25 or more) by January 1, 2016, with annual increases that will result in a $15.00 hourly wage rate by 2018â€"2020. The Council did not direct staff to create small business exemptions (or any other exemptions), but a slower phase-in rate may be considered for employees of small businesses. The city will have outreach for residents and business owners to discuss details of the proposed ordinance. Staff hopes to present a draft for The Council's approval as early as October or November 2015.
Union exemptions
As of December 2014, unions were exempt from recent minimum wage increases in Chicago, Illinois, SeaTac, Washington, and Milwaukee County, Wisconsin, as well as the California cities of Los Angeles, San Francisco, Long Beach, San Jose, Richmond, and Oakland. In 2016, the Washington, D.C. Council passed a minimum wage ordinance that included a union waiver, but Mayor Vincent Gray vetoed it. Later that year, the council approved an increase without the union waiver.
Trends in purchasing power
Since its inception the purchasing power of the minimum wage has fluctuated. The minimum wage had its highest purchasing power in 1968, when it was $1.60 per hour ($11.49 in 2017 dollars). From January 1981 to April 1990, the minimum wage was frozen at $3.35 per hour, then a record-setting minimum wage freeze. From September 1, 1997 through July 23, 2007, the federal minimum wage remained constant at $5.15 per hour, breaking the old record. From the United States Department of Labor. Employment Standards Administration. Wage and Hour Division, the source page has a clickable US map with current and projected state-by-state minimum wage rates for each state. 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 was the highest in the nation, until San Francisco increased its minimum wage to $9.79 in 2009. Another device to increase wages, living wage ordinances, generally apply only to businesses that are under contract to the local government itself.
Since 1984, the purchasing power of the federal minimum wage has decreased. Measured in real terms (adjusted for inflation) using 1984 dollars, the real minimum wage was $3.35 in 1984, $2.33 in 1994, $1.84 in 2004, and $1.46 in 2014. If the minimum wage had been raised to $10.10 in 2014, that would have equated to $4.40 in 1984 dollars. This would have been equal to a 31% increase in purchasing power, despite the nominal value of the minimum wage increasing by 216% in the same time period.
Economic effects
The economic effects of raising the minimum wage are controversial. Adjusting the minimum wage may affect current and future levels of employment, prices of goods and services, economic growth, income inequality, and poverty. The interconnection of price levels, central bank policy, wage agreements, and total aggregate demand creates a situation in which conclusions drawn from macroeconomic analysis are highly influenced by the underlying assumptions of the interpreter.
Employment and job creation
The law of demand states thatâ€"all else being equalâ€"raising the price of any particular good or service reduces the quantity demanded. Thus, neoclassical economics argues thatâ€"all else being equalâ€"raising the minimum wage will have adverse affects on employment.
Conceptually, if an employer does not believe a worker generates value equal to or in excess of the minimum wage, they don't hire or retain that worker.
Empirical work on fast food workers in the 1990s challenged the neoclassical model. In 1994, economists David Card and Alan Krueger studied employment trends among 410 restaurants in New Jersey and eastern Pennsylvania following New Jersey's minimum wage hike (from $4.25 to $5.05) in April 1992. They found "no indication that the rise in the minimum wage reduced employment." However, a 1995 re-analysis of the evidence by David Neumark found that the increase in New Jersey's minimum wage actually resulted in a 4.6% decrease in employment. Neumark's study relied on payroll records from a sample of large fast-food restaurant chains, whereas the Card-Krueger study relied on business surveys.
Additional research conducted by David Neumark and William Wascher (which surveyed over 100 studies related to the employment effects of minimum wages) found that the majority of peer-reviewed economic research (about two-thirds) showed a positive correlation between minimum wage hikes and increased unemploymentâ€"especially for young and unskilled workers. Neumark's analysis further found that, when looking at only the most credible research, 85% of studies showed a positive correlation between minimum wage hikes and increased unemployment.
In February 2014, the Congressional Budget Office (CBO) reported the theoretical effects of a federal minimum wage increase under two scenarios: an increase to $9.00 and an increase to $10.10. According to the report, approximately 100,000 jobs would be lost under the $9.00 option, whereas 500,000 jobs would be lost under the $10.10 option (with a wide range of possible outcomes).
A 2013 Center for Economic and Policy Research (CEPR) review of multiple studies since 2000 indicated that there was "little or no employment response to modest increases in the minimum wage." Another CEPR study in 2014 found that job creation within the United States is faster within states that raised their minimum wage. In 2014, the state with the highest minimum wage in the nation, Washington, exceeded the national average for job growth in the United States.
A 2012 study led by Joseph Sabia, professor of economics at the University of New Hampshire, estimated that the 2004-6 New York State minimum wage increase (from $5.15 to $6.75) resulted in a 20.2% to 21.8% reduction in employment for less-skilled, less-educated workers. Another study conducted by Joseph Sabia, then an assistant professor at American University, found that minimum wages were ineffective at alleviating poverty for single mothers. The study further concluded that a 10% increase in the minimum wage was associated with an 8.8% reduction in employment and an 11.8% reduction in hours for uneducated single mothers.
Research conducted by Richard Burkhauser, professor emeritus of Policy Analysis at Cornell University, concluded that minimum wage increases "significantly reduce the employment of the most vulnerable groups in the working-age populationâ€"young adults without a high school degree (aged 20-24), young black adults and teenagers (aged 16-24), and teenagers (aged 16-19)."
A 2007 study by Daniel Aaronson and Eric French concluded that a 10% increase in the minimum wage decreased low-skill employment by 2-4% and total restaurant employment by 1-3%.
The Economist wrote in December 2013: "A minimum wage, providing it is not set too high, could thus boost pay with no ill effects on jobs...Some studies find no harm to employment from federal or state minimum wages, others see a small one, but none finds any serious damage...High minimum wages, however, particularly in rigid labour markets, do appear to hit employment. France has the rich world’s highest wage floor, at more than 60% of the median for adults and a far bigger fraction of the typical wage for the young. This helps explain why France also has shockingly high rates of youth unemployment: 26% for 15- to 24-year-olds."
Prices
Conceptuallyâ€"all else being equalâ€"raising the minimum wage increases the cost of labor. Thus, employers may accept lower profits, raise their prices, or both. If prices increase, consumers may demand a lesser quantity of the product, substitute other products, or switch to imported products. Marginal producers (those who are barely profitable enough to survive) may be forced out of business if they cannot raise their prices sufficiently to offset the higher cost of labor. Federal Reserve Bank of Chicago research from 2007 has shown that restaurant prices rise in response to minimum wage increases.
Effects on crime
A 2016 White House report based on "back of envelope calculations and literature review" argued that higher hourly wages led to less crime.
A report by the Council of Economic Advisers claimed that "raising the minimum wage reduces crime by 3 to 5 percent." To get those numbers, the study assumed that "such a minimum wage increase would have no employment impacts, with an employment elasticity of 0.1 the benefits would be somewhat lower."
However, in a 1987 journal article based on actual study data, Masanori Hashimoto noted that minimum wage hikes lead to increased levels of property crime in areas affected by the minimum wage after its increase. According to the article, by decreasing employment in poor communities, total legal trade and production are curtailed. The report also claimed that to compensate for the decrease in legal avenues for production and consumption, poor communities increasingly turn to illegal trade and activity.
Economic growth
Whether growth (GDP, a measure of both income and production) increases or decreases depends significantly on whether the income shifted from owners to workers results in an overall higher level of spending. The tendency of a consumer to spend their next dollar is referred to as the marginal propensity to consume or MPC. The transfer of income from higher income owners (who tend to save more, meaning a lower MPC) to lower income workers (who tend to save less, with a higher MPC) can actually lead to an increase in total consumption and higher demand for goods, leading to increased employment. Recent research has shown that higher wages lead to greater productivity.
The CBO reported in February 2014 that income (GDP) overall would be marginally higher after raising the minimum wage, indicating a small net positive increase in growth. Raising the minimum wage to $10.10 and indexing it to inflation would result in a net $2 billion increase in income during the second half of 2016, while raising it to $9.00 and not indexing it would result in a net $1 billion increase in income.
Income inequality
An increase in the minimum wage is a form of redistribution from higher-income persons (business owners or "capital") to lower income persons (workers or "labor") and therefore should reduce income inequality. The CBO estimated in February 2014 that raising the minimum wage under either scenario described above would improve income inequality. Families with income more than 6 times the poverty threshold would see their incomes fall (due in part to their business profits declining with higher employee costs), while families with incomes below that threshold would rise.
Poverty
Among hourly-paid workers In 2016, 701,000 earned the federal minimum wage and about 1.5 million earned wages below the minimum. Together, these 2.2 million workers represented 2.7% of all hourly-paid workers.
CBO estimated in February 2014 that raising the minimum wage would reduce the number of persons below the poverty income threshold by 900,000 under the $10.10 option versus 300,000 under the $9.00 option.
Research conducted by David Neumark and colleagues found that minimum wages are associated with reductions in the hours and employment of low-wage workers. A separate study by the same researchers found that minimum wages tend to increase the proportion of families with incomes below or near the poverty line. Similarly, a 2002 study led by Richard Vedder, professor of economics at Ohio University, concluded that "The empirical evidence is strong that minimum wages have had little or no effect on poverty in the U.S. Indeed, the evidence is stronger that minimum wages occasionally increase poverty…"
Federal budget deficit
The CBO reported in February 2014 that "[T]he net effect on the federal budget of raising the minimum wage would probably be a small decrease in budget deficits for several years but a small increase in budget deficits thereafter. It is unclear whether the effect for the coming decade as a whole would be a small increase or a small decrease in budget deficits." On the cost side, the report cited higher wages paid by the government to some of its employees along with higher costs for certain procured goods and services. This might be offset by fewer government benefits paid, as some workers with higher incomes would receive fewer government transfer payments. On the revenue side, some would pay higher taxes and others less.
Commentary
Economists
According to a survey conducted by economist Greg Mankiw, 79% of economists agreed that "a minimum wage increases unemployment among young and unskilled workers."
A 2015 survey conducted by the University of New Hampshire Survey Center found that a majority of economists believes raising the minimum wage to $15 per hour would have negative effects on youth employment levels (83%), adult employment levels (52%), and the number of jobs available (76%). Additionally, 67% of economists surveyed believed that a $15 minimum wage would make it harder for small businesses with less than 50 employees to stay in business.
A 2006 survey conducted by economist Robert Whaples of a sample of 210 Ph.D. economists randomly selected from the American Economic Association, found that, regarding the U.S. minimum wage:
- 46.8% favored eliminating it
- 14.3% favored keeping it the same
- 1.3% favored decreasing it
- 5.2% favored increasing it by about 50 cents per hour
- 15.6% favored increasing it by about $1 per hour
- 16.9% favored increasing it by more than $1 per hour
In 2014, over 600 economists signed a letter in support of increasing the minimum wage to $10.10 with research suggesting that a minimum wage increase could have a small stimulative effect on the economy as low-wage workers spend their additional earnings, raising demand and job growth. Also, seven recipients of the Nobel Prize in Economic Sciences were among 75 economists endorsing an increase in the minimum wage for U.S. workers and said "the weight" of economic research shows higher pay doesn’t lead to fewer jobs.
According to a February 2013 survey of the University of Chicago IGM Forum, which includes approximately 40 economists:
- 34% agreed with the statement that "Raising the federal minimum wage to $9 per hour would make it noticeably harder for low-skilled workers to find employment", with 32% disagreeing and 24% uncertain
- 42% agreed that "...raising the minimum wage to $9 per hour and indexing it to inflation...would be a desirable policy", with 11% disagreeing or strongly disagreeing and 32% uncertain.
According to a fall 2000 survey conducted by Fuller and Geide-Stevenson, 73.5% (27.9% of which agreed with provisos) of American economists surveyed[How many?] agreed that minimum wage laws increase unemployment among unskilled and young workers, while 26.5% disagreed with the statement.
Economist Paul Krugman advocated raising the minimum wage moderately in 2013, citing several reasons, including:
- The minimum wage was below its 1960s purchasing power, despite a near doubling of productivity;
- The great preponderance of the evidence indicates there is no negative impact on employment from moderate increases; and
- A high level of public support, specifically Democrats and Republican women.
Major political parties
Democratic candidates, elected officials, and activists support an increase in the minimum wage. In his 2013 State of the Union Address, President Barack Obama called for an increase in the federal minimum wage to $9 an hour; several months later, Democrats Tom Harkin and George Miller proposed legislation to increase the federal minimum wage to $10.10; and in 2015, congressional Democrats introduced a proposal to increase the federal minimum wage to $12 an hour. These efforts did not succeed, but increases in city and state minimum wages prompted congressional Democrats to continue fighting for an increase on the federal level. After much internal party debate, the party's official platform adopted at the 2016 Democratic National Convention stated: "We should raise the federal minimum wage to $15 an hour over time and index it, give all Americans the ability to join a union regardless of where they work, and create new ways for workers to have power in the economy so every worker can earn at least $15 an hour."
Most Republican elected officials oppose action to increase the minimum wage, and have blocked Democratic efforts to increase the minimum wage. Republican leadership such as Speakers of the House John Boehner and Paul Ryan have opposed minimum wage increases. Some Republicans oppose having a minimum wage altogether, while a few, conversely, have supported minimum wage increases or indexing the minimum wage to inflation.
Polls
The Pew Center reported in January 2014 that 73% of Americans supported raising the minimum wage from $7.25 to $10. By party, 53% of Republicans and 90% of Democrats favored this action. Pew found a racial difference for support of a higher minimum wage in 2017 with most blacks and Hispanics supporting a $15.00 federal minimum wage, and 54% of whites opposing it.
A Lake Research Partners poll in February 2012 found the following:
- Strong support overall for raising the minimum wage, with 73% of likely voters supporting an increase to $10 and indexing it to inflation during 2014, including 58% who strongly support the action;
- Support crosses party lines, with support from 91% of Democrats, 74% of Independents, and 50% of Republicans; and
- A majority (56%) believe that raising the minimum wage will help the economy, 16% believe it won't make a difference, and only 21% felt it would hurt the economy.
List by jurisdiction
This is a list of the minimum wages (per hour) in each state and territory of the United States, for jobs covered by federal minimum wage laws. If the job is not subject to the federal Fair Labor Standards Act, then state, city, or other local laws may determine the minimum wage. A common exemption to the federal minimum wage is a company having revenue of less than $500,000 per year while not engaging in any interstate commerce.
Under the federal law, workers who receive a portion of their salary from tips, such as waitstaff, are required only to have their total compensation, including tips, meet the minimum wage. Therefore, often, their hourly wage, before tips, is less than the minimum wage. Seven states, and Guam, do not allow for a tip credit. Additional exemptions to the minimum wage include many seasonal employees, student employees, and certain disabled employees as specified by the FLSA.
In addition, some counties and cities within states may implement a higher minimum wage than the rest of their state. Sometimes this higher wage applies only to businesses that contract with the local government, while in other cases the higher minimum applies to all work.
Federal
State
The average US minimum wage per capita (2017) is $8.49 based on the population size of each state and generally represents the average minimum wage experienced by a person working in one of the fifty US states. Cities, counties, districts, and territories are not included in the calculation. As of October 2016, there have been 29 states with a minimum wage higher than the federal minimum. From 2014 to 2015, nine states increased their minimum wage levels through automatic adjustments, while increases in 11 other states occurred through referendum or legislative action. Beginning in January 2017, Massachusetts and Washington state have the highest minimum wages in the country, at $11.00 per hour. New York City's minimum wage will be $15.00 per hour by the end of 2018.
Territory
Federal District
Jobs affected, 2006, 2009
Jobs that a minimum wage is most likely to directly affect are those that pay close to the minimum.
According to the May 2006 National Occupational Employment and Wage Estimates, the four lowest-paid occupational sectors in May 2006 (when the federal minimum wage was $5.15 per hour) were the following:
Two years later, in May 2008, when the federal minimum wage was $5.85 per hour and was about to increase to $6.55 per hour in July 2008, these same sectors were still the lowest-paying, but their situation (according to Bureau of Labor Statistics data) was:
In 2006, workers in the following 13 individual occupations received, on average, a median hourly wage of less than $8.00 per hour:
In 2008, only two occupations paid a median wage less than $8.00 per hour:
According to the May 2009 National Occupational Employment and Wage Estimates, the lowest-paid occupational sectors in May 2009 (when the federal minimum wage was $7.25 per hour) were the following:
See also
References
External links
- Minimum wage in the United States at Curlie (based on DMOZ)
- Federal Minimum Wage. United States Department of Labor Wage and Hour Division.
- Minimum Wages for Tipped Employees. United States Department of Labor Wage and Hour Division.
- History of Federal Minimum Wage United States Department of Labor Wage and Hour Division.
- U.S. Minimum Wage History. Oregon State University â€" Wealth and Poverty (Anth 484). Last updated December 26, 2012.