Minimum Wage in America

Minimum Wage in America

Although every employee in the US is protected by minimum wage laws, the situation is a lot more complex than it is in many other countries. The actual level of the minimum wage depends on where you work, and there’s an intense political debate about how policy should change in the future.

Federal Minimum Wage

The basic income protection for US workers is the federal minimum wage. This was first introduced in 1933 as part of Roosevelt’s New Deal but was struck down as unconstitutional by a 1935 Supreme Court ruling. Following a change of mind by the Court, it was reintroduced in 1938 and has existed ever since. However, its value has fluctuated over time and is now on a relative decline. The real-world value of the federal minimum wage peaked in 1968 at $1.60 — equivalent in value to $11.85 today — but the actual current minimum wage is $7.25.

State Minimum Wage

On top of the federal minimum wage, all but 5 states have their own minimum wage laws and, currently, 29 of them set a higher rate than the federal minimum. The highest state minimum wages are California, Washington and Massachusetts, at $12.00, while Washington, DC sets it at $14.00. At the city level, it can be even higher; in Emeryville, CA it’s $16.30.

Restrictions and Exemptions

There are some restrictions and exemptions on most of these minimum wage laws. Smaller companies may be allowed to pay less. For example, in Los Angeles, the rate is $14.25 for companies with 26 or more employees, but $13.25 for those with 25 or fewer. Unions are exempt from paying San Francisco’s $15.59 minimum wage, and almost all jurisdictions allow a much lower rate (restaurant minimum wage) for tipped staff like waiters or bartenders — often with the condition that employers must make up the difference if the wage and tips combined don’t match the regular minimum wage.

The $15 Figure Argument

The last few years have seen a growing push to raise the federal minimum wage significantly. The Democratic Party advocates increasing it to $15 an hour. They argue that large numbers of people currently earning minimum wage are living in poverty, indicating that it’s too low. Minimum wages are also a redistributionist policy, which is popular on the political left.

However, almost 80% of economists believe that increasing the minimum wage also would increase unemployment among young and low-skilled workers, while 67% think a $15 minimum would make it harder for small businesses to stay viable. Laws that set a lower rate for smaller businesses may deter companies from expanding, preventing the creation of new jobs. A higher minimum wage could also lead to inflation, as companies are forced to raise wages across the board to differentiate more skilled jobs from those paid minimum wages. This forces up prices in turn.

There’s broad public support for some increase in the federal minimum wage, with $9 — and then increases linked to inflation — a commonly proposed figure. Even a majority of Republican voters support this. However, with the Democrats pushing for a much higher minimum wage, it’s likely to be a controversial topic for some time.

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