Minimum Wage

Minimum wage laws dictate the lowest hourly wages employers can pay their workers. Minimum wage in the United States currently stands at $7.25 per hour for most employees, but individual states can implement their own laws. When a state’s minimum wage does not match the federal one, minimum wage earners receive the higher of the two amounts.

As of 2011, nearly 4 million Americans worked at or below the minimum wage. (It is illegal to pay someone less than minimum wage.) Some people argue that minimum wage workers deserve more for their work. They say the minimum wage is not enough to sustain a comfortable life. Others oppose minimum wage laws. They argue that the laws do more harm than good by discouraging employers from hiring unskilled workers.

Federal Minimum Wage

The federal minimum wage has been $7.25 since 2009, set forth by the Fair Labor Standards Act (FLSA). The act also dictates that workers must receive overtime pay equivalent to 1.5 times the standard wage, for any more than 40 hours worked in a single week.

These regulations come with exceptions, which include the following:
  • Tipped employees can receive wages of $2.13 per hour or higher as long as the hourly wage plus tips is at least the federal minimum wage.
  • Workers younger than 20 can receive wages as low as $4.25 per hour for their first 90 days of employment.
  • Full-time students can be paid 85 percent of the federal minimum wage if it is approved by the Department of Labor.
  • Student learners – high school students 16 or older who enroll in vocational education programs – can be paid 75 percent of the minimum wage.
  • Workers with disabilities can be paid less than the minimum wage, proportional to each worker’s productivity abilities, if it is approved by the Department of Labor.

State Minimum Wages

States can pass their own minimum wage laws. These laws can be lower than, equal to or higher than the federal minimum wage, or states can have no minimum wage laws at all.

If a state has no minimum wage law or its minimum wage is lower than the federal law, workers are entitled to the federal wage.

If a state’s minimum wage is higher than the federal one, workers are entitled to the state-specific wage. Higher minimum wages are most common in states with higher costs of living.

As of Jan. 1, 2013, there were 19 states, plus Washington, D.C., that paid wages higher than the federal minimum wage. However, some of these wages are conditional and vary based on employee benefits and company profits.

The states and wages are as follows:
  • Alaska ($7.75)
  • Arizona ($7.80)
  • California ($8.00)
  • Colorado ($7.78)
  • Connecticut ($8.25)
  • Florida ($7.79)
  • Illinois ($8.25)
  • Maine ($7.50)
  • Massachusetts ($8.00)
  • Michigan ($7.40)
  • Missouri ($7.35)
  • Montana ($7.80)
  • Nevada ($8.25)
  • New Mexico ($7.50)
  • Ohio ($7.85)
  • Oregon ($8.95)
  • Rhode Island ($7.75)
  • Vermont ($8.60)
  • Washington ($9.19)
  • Washington, D.C. ($8.25)

The Typical Minimum Wage Employee

It’s a popular misconception that most people working at minimum wage are teenagers looking to pick up extra cash after school or between classes. However, a 2012 study by the Economic Policy Institute found that of all minimum wage workers in the country, 78 percent work at least 20 hours a week and 80 percent are 20 years or older.

Findings released by the Federal Bureau of Labor Statistics also shed some light on this issue. It found that in 2011, 1.68 million hourly workers earned the federal minimum wage, while another 2.15 million earned even less.

Those earning the minimum wage or less accounted for 5.2 percent of all employees paid hourly. They were most likely 25 or older, white, female and working less than 35 hours per week.

Arguments for a Higher Minimum Wage

Many organizations advocate for higher minimum wages, arguing that workers cannot make decent livings while earning minimum wages.

A 2012 study by the National Low Income Housing Coalition looked at the discrepancy between earnings and housing costs. It recorded how many hours a minimum wage employee would have to work each week to be able to afford a two-bedroom home with standard rent. The study assumed that 30 percent of an individual’s income would go toward housing.

The study found that in every state, an individual would have to work at least 63 hours a week at minimum wage to afford rent.

The biggest discrepancies between rent and hours required were in Eastern states and California, where employees might have to work 100 hours or more each week to afford rent. Washington, D.C., had the highest hours needed, at 140, followed by New Jersey (138), Maryland (137), New York (136) and California (130).

The study also looked at national conditions. For this, study authors used a few figures: A minimum wage worker earns the federal minimum of $7.25 per hour; the country’s average fair market rent for a two-bedroom home was $949 per month in 2012; and an individual can afford a home if the rent accounts for 30 percent or less of the individual’s paycheck.

By these standards, the study showed that the average minimum wage employee would have to work 101 hours per week to be able to afford the country’s average fair market rent. One-bedroom apartments did not prove significantly more affordable, as it would take 85 hours per week at minimum wage to reach the fair market rent of a typical one-bedroom home.

Studies such as this one advocate a higher minimum wage as well as better access to programs that help meet needs affordably.

Other advocates also point to inflation, stating that the minimum wage must keep up with rising costs. The National Employment Law Project argues, “The federal minimum should be restored to its historic purchasing power. As a benchmark, the minimum wage from 1968 would be worth over $10 per hour in today’s dollars.”

Arguments for a Lower Minimum Wage

On the other side of the spectrum, some say it hurts the economy as a whole when employers are forced to pay a certain amount of money for labor. They can’t simply hire people who are willing to work for a certain wage, if that wage is below minimum wage.

A 2012 video by Steve Patterson for the Foundation for Economic Education (FEE) argued that minimum wage laws actually hurt poorer, less-skilled and younger workers — the same workers that the laws are meant to protect. The idea is that employers will not create jobs unless the value of the job is greater than the value of $7.25 per hour.

In other words, employers need to get their money’s worth; otherwise, they will stop filling lower, less valuable positions. “It is impossible to sustain employing anyone doing work which is valued less than their wage,” the video states. So, it argues, as minimum wage increases, employers believe fewer and fewer positions are worth the cost.

When minimum wage increases, employers are left with only two options in order to remain at a steady profit: They can reduce the number of people they employ, or they can increase the price of their goods.

Reducing the workforce is no good because it increases unemployment rates and makes basic needs less attainable to those put out of work. According to Hans Sennholz, a writer for FEE, unskilled workers left without jobs suffer psychologically as well. “Condemned to idleness and uselessness in a highly productive society, and barred from making their own contributions, many, in desperation, turn to vice and crime,” he wrote.

The alternative isn’t much better, according to the video. Higher prices discourage spending and hurt the entire economy. And workers with the lowest wages are hurt the most, as they are least likely to be able to afford goods at higher costs.

As long as there are wages, there will be disputes over minimum wage laws. For now, the national minimum wage stands at $7.25 per hour and isn’t set to change in the near future.

Al Krulick


More From This Author
Get Help Now

Overwhelmed with debt? You have options for lower monthly payments!