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Minimum wage definition: Minimum wage refers to the base rate of pay for employees for the normal hours worked. The minimum wage depends on the industrial sector that applies to their employment; these include a national minimum wage order, enterprise agreement, transitional pay scale, and a modern award. In the United States, the minimum wage is set by the collective efforts of the local, state, and federal statutes. The workers generally have to be paid not less than the set minimum wage; this is usually specified by either the local, state or the federal government. The minimum wage provisions for the Federal government are contained in the Fair Labor Standards Act (FLSA). The current minimum wage by the Federal provisions stands at 7.25 per hour and has been in effect since July 24, 2009 (Dol.gov 2015). The different states have their minimum wage laws that they follow. Some of the state laws give greater protection to employees; the employers are bound by both and must comply with them.
Some states have laws under which wage payment and collection procedures for the usual or promised wages and commissions to employees more than those stipulated FLSA. The FLSA does not cover such wages or commissions that are excess to those in its requirements (Dol.gov, 2015). Some states also have regulations that govern fringe benefits and hence they can be filed.
History of Minimum Wage
The minimum wage traces its roots to 1912. A commission was organized in Massachusetts to make recommendations on non-compulsory minimum wages for children and women. Ten years later at least 13 states had passed the minimum wage laws. Various laws were invalidated by the Supreme Court as they were deemed unconstitutional. They were said to interfere with the employer’s ability to negotiate suitable wage agreements with the employees freely.
In 1933, the first attempt was made to set a national minimum wage. The attempt saw the minimum wage established at $0.25 per hour under National Industrial Recovery Act. In 1935, the act was declared unconstitutional following a court case and, as a result, the minimum wage got abolished. The re-establishment of the minimum wage came in 1938. Originally FLSA only covered about 38% of the entire workforce; most of these were in the mining, manufacturing, and transportation industries. Over the years, the coverage of the FLSA has been increased by Congress together with the increase in the minimum wage rate. Air industry was incorporated into the covered areas in 1947 while retail trade followed in 1961. Construction, public schools, nursing homes, laundries, and farms were added in 1966. The coverage as later widened to cover employees in the local government in 1974. Currently, about 85% of the labor force is covered by FLSA (Wilson, 2012).
The raising of the federal minimum wage has been carried out 22 times since 1938. The rate rose rapidly from $3.78 to $10.34 between 1948 and 1968. The last minimum wage rate was last set in 2009 at $7.25 per hour which is 85% greater than the previous benchmark in today’s dollars. The rate is with the exemption of some states like American Samoa. Tipped workers may receive less hourly pay from employers but the pay the tip has to be equal to the minimum wage. Most states also have their minimum wage rates that are usually higher than FLSA rates. Five states lack their own minimum wage laws and follow those of FLSA.
Effects of Minimum Wage
The minimum wage has various general effects on the labor market. Minimum wage together with the jobs that pay near the minimum wage, play a crucial role in the United States labor force. According to Belman and Wolfson (2014) research indicates that alterations in the minimum wage affect about 20-30 percent of the entire labor force. These figures indicate the importance of considering the policies related to minimum wage since they affect a substantial fraction of the labor force. The U.S. labor department states that minimum wage workers who could benefit from increases in the federal minimum wage are majorly 20 and above at 89 percent. Of these, 56 percent are women; this goes in contrast that the minimum wage increase to $12 per hour will benefit the teens only (Dol.gov, 2015).
The increase in minimum wage levels is usually viewed as a means to lift low-income employees out of poverty. For the low-wage workers, the increase results in more family income. Some families would experience a rise in income beyond the poverty threshold set by the Federal Government. However, there has been contrasting views on the tenacity of this; some argue that it does the opposite. Raising minimum wage is associated with undesirable results to the same people it intends to help. It’s argued that the rise leads to an elimination of some jobs for low-wage employees. This leads to increased joblessness. It’s estimated that raising the minimum wage to $10.10 per hour is likely to lead to a loss of 500,000 jobs from the job market. A raise to $9.00 is likely to result in a loss of 100,000 jobs (Wihbey, 2015).
When the minimum wage is raised, the employers face increased labor costs and are forced to respond in a bid to decrease production costs. The employers sometimes respond by cutting the available jobs for the less educated and the less experienced workers. As such, these individuals who have limited options to find employment have more hard time securing employment (ALEC – American Legislative Exchange Council, 2015). The proponents argue that the increase has little or no adverse effects on employment. They argue that the increase results in positive effects on the economy as the additional income is spent raising job growth and demand.
When the minimum wage is increased, those who are already employed tend to benefit at the expense of the unemployed ones. Additionally increase in minimum wages makes those who experience the increase fail to feel the full advantage of the increased pay as the businesses move to raise the prices to counter the increased labor costs. Particularly notable is that increasing the minimum wages leads to increase in the prices of food. This situation offsets the gains for the people in employment while it exacerbates the problem for the people who cannot secure employment.
At the macro level, increasing the minimum wage substantially is likely to result in far-reaching effects. The effects could create a ripple effect on the economy. Such increase is likely to boost the wages of about 30 percent of the workforce in the United States. The majority of minimum wage workers tend to be young. Workers who fall under 25 years represent a fifth of the workers paid on an hourly basis; however, they make about half of the figure of employees paid the federal minimum wage with some receiving less. 23 percent of employed teenagers paid hourly earn minimum wage or less. Of the workers aged 25 and above, only 3 percent earn the minimum wage or less (Wihbey, 2015).
Minimum wage increases face opposing arguments on the usefulness. However, it’s agreed that moderate increases in the minimum wage are useful in raising the wages of the lower levels of wage distribution with little or no effect on hours and employment (Wihbey, 2015). The solid benefits with small costs are what policy tools focus. Large increases in minimum wage do not result in very efficient outcomes.
Minimum Wage Essay Conclusion
Minimum wage refers to the base rate of pay for workers for the ordinary time worked. The minimum wage depends on set laws and the industry of operation. The minimum wage rates are set by local, state, or federal labor governing agencies. The minimum wage has undergone various phases; there have been various reviews dating back to 1912. The current minimum wage rates stand at $7.25 per hour in the United States. There are some states with their own minimum wage rates with a majority being higher than the federal rate. Increasing minimum wage rates has various effects. Positive effects of minimum wage hikes include a reduction in poverty and the strengthening of the spending power and the economy. Adverse effects include job cuts, an increase in prices of products, rise in unemployment and losses.
ALEC – American Legislative Exchange Council,. (2015). Raising the Minimum Wage: The Effects on Employment, Businesses and Consumers – ALEC – American Legislative Exchange Council. Retrieved 27 October 2015, from http://www.alec.org/publications/minimum-wage/
Belman, D., & Wolfson, P. (2014). What does the minimum wage do?. Kalamazoo Michigan: W.E. Upjohn Institute for Employment Research.
Dol.gov,. (2015). Minimum Wage – Wage and Hour Division (WHD) – U.S. Department of Labor. Retrieved 27 October 2015, from http://www.dol.gov/whd/minimumwage.htm
Dol.gov,. (2015). Minimum Wage Mythbusters – U.S. Department of Labor. Retrieved 27 October 2015, from http://www.dol.gov/minwage/mythbuster.htm
Wihbey, J. (2015). Effects of raising the minimum wage: Research and key lessons – Journalist’s Resource. Journalist’s Resource. Retrieved 27 October 2015, from http://journalistsresource.org/studies/economics/inequality/the-effects-of-raising-the-minimum-wage
Wilson, M. (2012). The Negative Effects of Minimum Wage Laws. Downsizing the Federal Government. Retrieved 28 October 2015, from http://www.downsizinggovernment.org/labor/negative-effects-minimum-wage-laws