Minimum Wage Basics 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, 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: When federal law does not apply, the state minimum wage applies

The History of the Federal Minimum Wage Fair Labor Standards Act of 1938 Set the minimum wage at $0.25. For values by year see… For a brief history see… 8,00.html 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 from A federal minimum wage was first set in 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 $ 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 from wage.html wage.html Multiplying the minimum wage by a work year of 50, 40- hour 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 from 84/minwage.html 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 1. 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

W ILL RAISING THE MINIMUM WAGE HELP THE POOR ? SOURCE FOR SLIDES Presentation Title : Poverty Lecture 10: Why are wage rates so low?Poverty Lecture 10: Why are wage rates so low? Presentation Summary : Poverty Lecture 10: Why are wage rates so low? Todays Readings. Schiller Ch. 6: The Working Poor ; DeParle, Ch. 6: The Establishment Fails: Washington, Source : pt pt Readings Schiller Ch. 6: The Working Poor DeParle, Ch. 6: The Establishment Fails: Washington, (Optional, Newman, Working Lives, eReserves, Ehrenreich, Serving in Florida, eReserves)

B ASIC FACTS ABOUT THE MINIMUM WAGE (A S SEEN BY O PPONENTS OF INCREASES ) Most minimum wage workers arent poor Who earns the minimum wage? 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.

B ASIC FACTS ABOUT THE MINIMUM WAGE O PPONENTS VIEW, CONT. Minimum wage increases cause job losses Teenagers from well-to-do families crowd out low- skill employees Black teenagers and young adults experience four times more employment loss than non-blacks. elasticity of employment with respect to the minimum wage for young minority males = -0.8

B ASIC FACTS ABOUT THE MINIMUM WAGE O PPONENTS VIEW, CONT. 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%

B ASIC FACTS ABOUT THE MINIMUM WAGE O PPONENTS VIEW, CONT. 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%

B ASIC FACTS ABOUT THE MINIMUM WAGE (A S SEEN BY P ROPONENTS OF INCREASES ) e_guide_on_minimum_wage/ e_guide_on_minimum_wage/ The minimum wage increase to $7.25 (July 2009) raised the wages of millions of workers. 4.5 million workers (4% of the workforce) Minimum wage increases benefited the children of working families. ~ 2.6 million children under 18

P ROPONENTS V IEW, 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

P ROPONENTS V IEW, CONT. 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. Southern and Mid-Western states benefited most.

P ROPONENTS V IEW, 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 Go to res_data/ and study Table 3 res_data/

P ROPONENTS V IEW, CONT. A minimum wage increase is part of a broad strategy to end poverty. Antipoverty effectiveness of the combination of minimum wages and EITC falls when neither is indexed (see next slide)

P ROPONENTS V IEW, CONT. 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?