Minimum Wage Basics
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http://www.dol.gov/whd/flsa/#min
Fair Labor Standards Act (FLSA) establishes minimum wage,
overtime pay, recordkeeping, and youth employment standards
affecting employees in the private sector and in Federal, State,
and local governments. Covered nonexempt workers are entitled
to a minimum wage of not less than $7.25 per hour effective July
24, 2009. Overtime pay at a rate not less than one and one-half
times the regular rate of pay is required after 40 hours of work in
a workweek.
SEE POSTER:
http://www.dol.gov/whd/regs/compliance/posters/minwage.pdf
When federal law does not apply, the state minimum wage
applies http://www.dol.gov/whd/minwage/america.htm
The History of the Federal Minimum Wage
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Fair Labor Standards Act of 1938
Set the minimum wage at $0.25.
For values by year see…
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For a brief history see…
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http://www.dol.gov/whd/minwage/chart.pdf
http://www.time.com/time/magazine/article/0,9171,191240
8,00.html
The federal minimum wage is not indexed to
inflation. The wage only rises when Congress acts.
Consequently, the purchasing power of the wage
declines in between the times Congress has raised
its value.
Nominal vs. Real
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from
http://oregonstate.edu/instruct/anth484/minwage.html
A federal minimum wage was first set in 1938.
The graph on the next slide shows nominal (blue
diamonds) and real (red squares) minimum wage
values. Nominal values range from $0.25/hr in 1938 to
the current $7.25/hr. The graph adjusts these wages to
2010 dollars (red squares) to show the real value of
the minimum wage.
Calculated in real 2010 dollars, the 1968 minimum
wage was the highest at $10.04. The real dollar
minimum wage (red squares) falls during periods
Congress does not raise the minimum wage to keep up
with inflation.
The minimum wage increased in three $0.70
increments--to $5.85 in July, 2007, $6.55 in July, 2008,
and to $7.25 in July 2009.
Minimum Wages and Poverty
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from
http://oregonstate.edu/instruct/anth484/min
wage.html
Multiplying the minimum wage by a work year of 50, 40hour weeks gives the annual earnings that can be
expected from a minimum wage job.
The real annual income from a minimum wage job is the
blue bars on the following page. The red line is the
poverty level real annual income for a family of four.
Minimum wages have never been sufficient to raise a
family out of poverty, if only one member of the family
works.
Minimum Wage Coverage
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from
http://oregonstate.edu/instruct/anth4
84/minwage.html
"Minimum Wage Coverage" is the percentage of
workers receiving minimum wage. Sources: U.S.
Bureau of the Census; U.S. Department of
Labor, Bureau of Labor Statistics; Statistical
Abstract of the United States; and Survey of
Current Business.
Economic Theory
The Minimum Wage is a Price
Control
There are two basic price
controls
Price Ceilings
Price Floors
Price Ceiling
 Price Ceiling - a government mandated
maximum price above which legal trades
cannot be made.
 Impact: Creates a shortage of the good.
 Alternative rationing methods must be employed.
 Examples of Price Ceilings
 Lines at the Gas Pump
 Rent Controls
Price Floors
 Price floor - a government mandated minimum
price below which legal trades cannot be made.
 Impact: Creates a surplus of the good.
 Example: The Minimum Wage, Agriculture Policy
of the Federal Government
Problems in estimating the impact of the
minimum wage
Nominal vs. Real wages: Cost of living must be
adjusted over time and across economic regions.
The lower the cost of living, the greater the impact
of a minimum wage.
2. Ceteris paribus: The problem of a growing economy.
3. Effect of uncovered sectors: Unemployment may
not be increased if workers can find work
elsewhere.
1. Not every firm is covered (generally small,
intrastate firms are not)
2. Noncompliance is an issue
1.
WILL
RAISING THE MINIMUM
WAGE HELP THE POOR?
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SOURCE FOR SLIDES 14-27
Presentation Title : Poverty Lecture 10: Why are wage
rates so low?
Presentation Summary : Poverty Lecture 10: Why
are wage rates so low? Today’s Readings. Schiller
Ch. 6: The Working Poor ; DeParle, Ch. 6: The
Establishment Fails: Washington, 1992 ...
Source :
http://www.nd.edu/~jwarlick/documents/Ch6WorkingPoor.p
pt
Readings
Schiller Ch. 6: The Working Poor
DeParle, Ch. 6: The Establishment Fails: Washington, 19921994
(Optional, Newman, “Working Lives,” eReserves, Ehrenreich,
“Serving in Florida,” eReserves)
BASIC FACTS ABOUT THE MINIMUM WAGE
(AS SEEN BY OPPONENTS OF INCREASES)
 Most
minimum wage workers aren’t
poor”
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Who earns the minimum wage?
http://www.bls.gov/cps/minwage2008.htm
 http://www.epionline.org/index_mw.cfm
 Minimum wage workers tend to be young--only 2%
of employees above the age of 25
 average family income of a minimum wage
employee is over $43,000.
 Single parent or single earner in a family with
kids account for only 15% of minimum wage
earners.
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BASIC FACTS ABOUT THE MINIMUM WAGE
OPPONENTS VIEW, CONT.
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Minimum wage increases cause job losses
Teenagers from well-to-do families crowd out lowskill employees
 Black teenagers and young adults experience four
times more employment loss than non-blacks.
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elasticity of employment with respect to the minimum wage
for young minority males = -0.8
BASIC FACTS ABOUT THE MINIMUM WAGE
OPPONENTS VIEW, CONT.
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The vast majority of minimum wage
workers move on to higher paying jobs as
they accumulate experience.
Two-thirds of minimum wage workers receive raises
within 1-12 months of hiring
 Annual median real wage growth for minimum wage
employees is nearly 7%
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BASIC FACTS ABOUT THE MINIMUM WAGE
OPPONENTS VIEW, CONT.
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Raising the minimum wage decreases
benefits and increases taxes.
Minimum wage workers lose government benefits
like EITC, FS, and health insurance.
 The effective marginal tax rate sometimes exceeds
100%
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BASIC FACTS ABOUT THE MINIMUM WAGE
(AS SEEN BY PROPONENTS OF INCREASES)
 http://www.epi.org/publications/entry/issu
e_guide_on_minimum_wage/
 The
minimum wage increase to $7.25
(July 2009) raised the wages of
millions of workers.
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4.5 million workers (4% of the workforce)
 Minimum
wage increases benefited
the children of working families.
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~ 2.6 million children under 18
PROPONENTS VIEW, CONT.
 Minimum
wage increases benefited
disadvantaged workers.
63% of beneficiaries are women, the largest
group of beneficiaries
 12% of working women would benefit directly
 African Americans represent 11% of the total
workforce, but are 18% of workers affected
 Hispanics represent 14% of the total
workforce, but are 19% of workers affected
 76% of the beneficiaries are 20 years or older
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PROPONENTS VIEW, CONT.
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38% of the benefits went to households in the
bottom 20% that receive 5% of national income
More than half of families with a minimum
wage worker earn less than $35,000 per year
Among families with children and a low-wage
worker
on average, the minimum wage worker contributes
(59%) of the family's earnings.
 46% of minimum wage workers contribute 100% of
their family's earnings.
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Southern and Mid-Western states benefited
most.
PROPONENTS VIEW, CONT.
 The
recent minimum wage increase
reversed the trend of declining real
wages for low-wage workers.
The inflation-adjusted value of the minimum
wage is 17% lower in 2009 than it was in 1968,
and is less than through most of the period
from 1961-1981.
 Go to
http://www.epi.org/publications/entry/tables_figu
res_data/ and study Table 3
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PROPONENTS VIEW, CONT.
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A minimum wage increase is part of a broad
strategy to end poverty.
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Antipoverty effectiveness of the combination of
minimum wages and EITC falls when neither is
indexed (see next slide)
PROPONENTS VIEW, CONT.
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There is no evidence of job loss from the
last minimum wage increase.
Study by David Card and Alan Krueger most often
cited
 How do these authors explain this contradiction to
economics theory?
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