A Primer on the Federal Minimum Wage

Federal Minimum Wage Rates i i

hide captionThe current minimum-wage rate of $5.15 — increased from $4.75 in 1997 — has remained static for almost a decade.

Jeremy VanderKnyff,NPR/U.S. Department of Labor
Federal Minimum Wage Rates

The current minimum-wage rate of $5.15 — increased from $4.75 in 1997 — has remained static for almost a decade.

Jeremy VanderKnyff,NPR/U.S. Department of Labor
Real Value of Minimum Wage i i

hide captionSince the last federal increase in September 1997, the purchasing power of the minimum wage — after accounting for inflation — has deteriorated by 20 percent.

Jeremy VanderKnyff,NPR/Economic Policy Institute
Real Value of Minimum Wage

Since the last federal increase in September 1997, the purchasing power of the minimum wage — after accounting for inflation — has deteriorated by 20 percent.

Jeremy VanderKnyff,NPR/Economic Policy Institute

The minimum wage is of maximum importance when it comes to welfare reform and poverty reduction. Learn more about how the value of an honest day's work is measured in the United States.

What is the minimum wage?

The federal minimum wage is $5.15 per hour for covered nonexempt employees. The Fair Labor Standard Act spells out who is and isn't exempt from the minimum-wage requirement.

Many states have their own minimum-wage laws. If an employee is subject to both federal and state minimum-wage laws, the higher of the two minimum wages applies.

Minimum-wage exceptions apply to workers with disabilities, full-time students, employees who receive tips, student-learners, and people younger than 20 during the first 90 days of their employment.

What about workers who receive tips?

Employers are required to pay their tipped employees $2.13 per hour in direct wages, if the following three conditions are met:

*The amount plus tips received equals the federal minimum wage or more.

*The employee keeps the tips.

*The employee regularly gets more than $30 a month in tips.

If an employee's tips plus direct wages do not equal the federal minimum hourly wage, the employer must make up the difference.

How often does the federal minimum wage increase?

The minimum wage does not increase automatically. In order to raise the minimum wage, Congress must pass a bill which the president signs into law.

Why has a federally mandated minimum-wage increase taken so long?

Congress has been slow to raise the minimum wage because many business groups are opposed, and many economists believe that increasing the wage will cause some jobs to disappear. The mainstream view is that increases in the minimum wage come with a price: fewer minimum-wage jobs.

How are states handling minimum-wage rates?

Across the country, states are debating minimum-wage rates. Many are raising the minimum wage through legislative action and ballot initiative. So far, 28 states and the District of Columbia have enacted minimum wages greater than those put in place at the federal level.

Since the last federal increase in September 1997, from $4.75 to $5.15, the purchasing power of the minimum wage — after accounting for inflation — has deteriorated by 20 percent. Adjusted for inflation, the value of the minimum wage is at its lowest since 1955. This year, state legislatures in Arkansas, Maryland, Michigan, North Carolina, and Pennsylvania raised their minimum wages above the federal level for the first time. Maine, Delaware, and Rhode Island — all states with minimum rates already above the federal level — passed additional increases this year.

Who benefits from the proposed minimum wage hike?

A lot of people would benefit from a minimum-wage increase, and not just those who work at minimum-wage jobs. There are millions of people who work for wages just above the hourly minimum who also would benefit.

Eleven percent of the work force, or an estimated 14.9 million workers, would receive an increase in their hourly wages if the minimum-wage rate were raised from $5.15 to $7.25 by 2008.

Among workers likely to benefit from the wage increase, 59 percent are women. Nine percent are single parents.

A wage increase benefits low-income families. Among families with children, the low-wage worker contributes, on average, more than half of the family's earnings. Forty-six percent of such workers contribute 100 percent of their family's earnings.

Who would be negatively impacted by the proposed wage increase?

Some low-skilled workers would likely see their jobs disappear. And there is another group that's hard to pinpoint: jobs that would have been created at $5.15, but won't be created at $7.25.

Whether the missing jobs disappear or never get created, it's primarily younger workers who are affected. Teenagers, dropouts and workers who only have a high school diploma — anyone who doesn't bring at least some specialized skills to the workplace could be hurt. Of course, they could also be helped. That's why an increase in the minimum wage is controversial.

Sources: U.S. Department of Labor; Economic Policy Institute; NPR News

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