The ability to earn a minimum hourly wage is a cornerstone of the American labor market…right? While it might offer some comfort to conceptualize our economy in this way, this statement is actually quite far from the truth. The reality is that a multitude of workers are not granted this standard of earnings. Even the ones who are remain subject to widespread discrepancies at the state level. Where did the minimum wage come from, and how is it continuing to shape the landscape of our markets?
What is the origin of the minimum hourly wage?
It doesn’t take a labor history scholar to comprehend the immense presence of the labor movement in American history. The conditions of work have long been driving forces behind some of the most consequential moments in the nation’s past. Cue indentured servitude and enslavement in the New World, the growing employment of children in the wake of the Second Industrial Revolution, or the festering racial discrimination in employment that catalyzed the March on Washington for Jobs and Freedom in 1963. Behind each victory was a mass of workers who risked their lives and livelihoods for the cause.
The victory most pertinent to this discussion is the Fair Labor Standards Act, which made landfall in 1938 under the hand of President Franklin Delano Roosevelt. The legislation set a nationwide minimum wage of one quarter per hour, representing just one piece of the ever-widening reach of the federal government during the New Deal. The act seems like a simple milestone, yet it disguises a decidedly more complex history.
As early as 1912, states had pushed through their own minimum wage laws. However, these statutes were struck down roughly ten years later as an overstep into the role employment contracts are meant to serve. Even when President Roosevelt worked to encourage minimum wage policies among employers in the early 1930s (with the National Industrial Recovery Act as a prime example), the Supreme Court again unravelled much of this work in 1935.
How, then, did the Fair Labor Standards Act eventually become the law of the land? The answer is somewhat shrouded in enigma, and it traces back to an event now deemed the “Big Switch.” Thanks to the shift in mindset of Justice Owen Roberts, the Supreme Court determined in West Hotel Company v. Parrish that a minimum wage decree in Washington state was, indeed, within the scope of the Constitution.
What does the minimum wage look like today?
The federal minimum wage today hovers at $7.25, where it has remained since 2009. This provision encompasses workers on two levels. The first is through “individual coverage,” which embraces domestic laborers and those participating in “interstate commerce.” The second is through “enterprise coverage.” This spans schools, medical institutions, government organizations, and other entities with over $500,000 worth of yearly transactions, all of which must employ more than two people.
The Fair Labor Standards Act also holds stipulations beyond hourly wages. For example, many employers (but not all of them) must pay workers at 150% of the minimum rate for any time spent on the job that overrides the threshold of 40 hours per week.
To pile onto these added intricacies, several states and territories (though not all) have their very own minimum wage statues. In the District of Columbia, this value lies at $15 per hour, more than double the federally-mandated one. Washington’s rate is comparably in excess of the federal minimum, falling at $13.50 per hour. It’s not uncommon for state minimum wages to top the federal one, in which case workers are compensated on the basis of the state rate.
What’s not to love?
Of course, the issue quickly becomes complicated when we look at those who do not reap the benefits of the minimum wage. The Fair Labor Standards Act includes a framework for subminimum wages, or pay rates below the federally established minimum, for wide swaths of workers, such as employees with disabilities that impact job functioning. Individuals below the age of 20 can be paid a “youth wage” of $4.25 per hour for 90 days after their first day on the job. Full-time students and students in vocational programs can also be compensated at rates beneath the minimum wage. Similarly, workers who garner greater than $30 in tips each month can legally be paid $2.13 per hour (so long as their earnings including tips reach the level of the federal minimum wage). Some workers are excluded from the minimum wage entirely, such as farm workers employed by “immediate family members,” fishers, switchboard operators, and more.
Likewise, overtime pay is not granted to workers of all categories. Those who work for airlines or movie theaters, drive taxis, process sugar, sell trucks or boats, and serve in numerous other professions are all exceptions to the overtime standard. Some jobs even have child labor exemptions, including but not limited to young performers or newspaper delivery workers.
Is a minimum wage really necessary, then?
Various minimum wage advocates proclaim that the practice is essential. For example, some argue that having a standard of payment protects workers from discriminatory compensation distribution among employers. Supporters also note that when the minimum wage rises, workers are able to purchase more and therefore put more money back into the economy, alongside upward trends in productivity and downward trends in turnover.
However, not everyone is convinced that the policy is an appropriate one. Classical economic arguments promote that zero government intervention is the best way to ward against deadweight loss. Price floors create excess supply by generating a situation where more people want to work than there are jobs to employ them.
Critics also highlight that a minimum wage might actually be detrimental for unskilled or less-skilled laborers. The policy makes it more difficult for employers to justify hiring additional employees whose abilities are not valued at this high a rate. When these workers are indeed taken on, firms might be forced to increase their commodity or service prices — an action that can disproportionately undermine lower-income folks.
What do you think? Is the minimum wage a vital piece of the American labor market, or might it be damaging workers’ prospects in the long run? Let us know your thoughts in the poll below.
Cover Photo by Patrick Tomasso via Unsplash
Do we need a minimum wage?
yes! it’s essential
no! it’s not effective