The minimum wage is the lowest legal wage that workers are required to be paid. Minimum wage laws are in place to protect workers from exploitation by employers. Ideally, the minimum wage should be a living wage – the minimum income necessary for a worker to meet their basic needs, including food, clothing, and shelter.
The federal minimum wage was first established by The Fair Labor Standards Act in 1938 during the Great Depression. It was initially set at $0.25 per hour and has since been increased by Congress 22 times, most recently in 2009 where it increased from $6.55 to $7.25 an hour – still the federal minimum wage 13 years later, translating to approximately $15,080 per year. In fact, the purchasing power of the federal minimum wage has decreased by one-third since February 1968, when it was $1.60 per hour (equivalent to approximately $13.86 in July 2022 when adjusted for inflation). Many states and cities have their own minimum wage which can take precedence, but only 30 states and Washington DC have minimum wages above the federal minimum wage of $7.25 per hour.
Per the US Bureau of Labor Statistics, workers paid the minimum wage are disproportionately younger: workers under the age of 25 represented just under 20% of hourly paid workers, but they made up about 48% of those who were paid the federal minimum wage or less.
Although the minimum wage is intended to protect workers from exploitation, the federal minimum wage of $7.25, which is the same since 2009, has not kept up pace with inflation. The annual inflation rate in 2009 was -0.36%, compared with the current annual inflation rate as of July 2022: 8.5%. This means that the minimum wage in the United States is no longer a living wage. Although quite a few states and employers are paying more than this amount, minimum-wage earners continue to struggle to make ends meet, many of whom have slid into poverty. Many low-income workers have to resort to alternative financial services to fill their payment and income gaps – such as payday loans and check cashing services which oftentimes have high fees and are predatory by nature.
There is a growing movement among workers, policy analysts, federal, state, and city governments, and employers to raise the minimum wage. Some states have implemented higher minimum-wage legislation (most notably California, which has an overall minimum wage of $14, and $15 for employers with 26 employees or more), but the federal minimum wage still remains at $7.25. There have been multiple efforts by Congress to raise the federal minimum to $15 an hour since 2009, but they have mostly stalled due to its debatable pros and cons. Law makers are concerned that increasing the minimum wage to $15 an hour would mean an increase in cost of products and services for large and small industries (Congressional Budget Office). The increase in labor cost would result in small businesses to lay off workers causing an increase in unemployment rate and poverty. On the other hand, raising the minimum wage to $15 an hour reduces income inequality, improves well-being, and spurs economic growth. Overall, there are likely more positives than negatives to increasing the federal minimum wage, although we do need to recognize the potential drawbacks. The Congressional Budget Office summed up the situation quite well, estimating that incrementally raising the federal minimum wage to $15 an hour by 2025 would benefit 17 million workers and lift about 900,000 people out of poverty, but would also reduce employment by 1.4 million people, cause prices to rise and overall economic output to decrease slightly, and increase the federal budget deficit by $54 billion over the next 10 years.
Lawmakers are weighing the positive effects of increasing the minimum wage, and there has been some progress. For example, in April 2021, the current administration issued an executive order to raise the minimum wage for federal contract workers to $15 per hour. To increase the minimum wage for all nationwide, Congress introduced the Raise the Wage Act of 2021 which aims to progressively raise the federal minimum wage to $15 by 2025. Although this bill is yet to be passed in the House, it is still an essential step forward in the right direction. What we can all do is to advocate and support bills/legislation such as these, to help establish a higher minimum wage in the very near future, and improve the economic and overall well-being of our current and future generations.
