What is a Minimum Wage? - Definition & History

An error occurred trying to load this video.

Try refreshing the page, or contact customer support.

Coming up next: What is a Profit-Sharing Plan? - Definition, Rules & Example

You're on a roll. Keep up the good work!

Take Quiz Watch Next Lesson
Your next lesson will play in 10 seconds
  • 0:00 Minimum Wage and Its History
  • 0:39 Federal Minimum Wage
  • 1:33 State Minimum Wage
  • 2:15 Advantages of Minimum Wage
  • 3:42 Lesson Summary
Save Save Save

Want to watch this again later?

Log in or sign up to add this lesson to a Custom Course.

Log in or Sign up

Speed Speed

Recommended Lessons and Courses for You

Lesson Transcript
Instructor: Paul Mckinney

Paul has been in higher education for 17 years. He has a master's degree and is earning his PhD in Community College Leadership.

Minimum wage is the lowest amount an employer can pay its employees for work performed. In the United States, the minimum wage was first enacted by Congress in 1938. Learn more about it in this lesson.

Minimum Wage and Its History

Minimum wage is the minimum amount of compensation an employee must receive for performing labor. It is illegal to pay an employee less than the minimum wage.

In 1912, Massachusetts, an industrial state, was the first state to enact minimum wage legislation. By 1920, 13 states, Puerto Rico, and the District of Columbia had enacted minimum wage programs. The Great Depression moved even more states to enact protective minimum wage legislation, and by 1938, the federal government enacted the Fair Labor Standards Act. The act allowed Congress to set the federal minimum wage.

Federal Minimum Wage

Let's look at a chart showing how the federal minimum wage has increased over the years:

Minimum Wage Rate by Year

The grey line shows the minimum wage unadjusted for inflation; whereas, the blue line shows you what it would be worth in 2012 dollars. When first created, the minimum wage in 1938 was $0.25. Adjusted for inflation, it would be worth $4.07 today. The minimum wage had its lowest buying power in 1948, when it was worth about $3.81 in today's dollars. It had its highest buying power in 1968, when it was worth about $10.56.

Some jobs are exempt from the minimum wage. A good example is employees who work for tips. These employees can be paid a minimum of $2.13 per hour, as long as the hourly wage plus tipped income results in a minimum of $7.25 per hour.

State Minimum Wage

Federal legislation does allow for states to set their own minimum wage for certain jobs. Below are the requirements that must be met before a state's minimum wage can be used in place of the federal requirements:

  • The job is not subject to the federal Fair Labor Standards Act
  • The organization has revenue of less than $500,000 per year
  • The organization is not engaging in any interstate commerce

Of the 46 states that do set their own minimum wage, the rates vary greatly. Some are well above the federal amount and some are below. Most states set their minimum wage based on the cost of living for their area.

Advantages of Minimum Wage

There are advantages to having a government that enforces a minimum wage standard. According to Arnold Anderson in an article from the online Houston Chronicle, some of these advantages include:

To unlock this lesson you must be a Study.com Member.
Create your account

Register to view this lesson

Are you a student or a teacher?

Unlock Your Education

See for yourself why 30 million people use Study.com

Become a Study.com member and start learning now.
Become a Member  Back
What teachers are saying about Study.com
Try it risk-free for 30 days

Earning College Credit

Did you know… We have over 200 college courses that prepare you to earn credit by exam that is accepted by over 1,500 colleges and universities. You can test out of the first two years of college and save thousands off your degree. Anyone can earn credit-by-exam regardless of age or education level.

To learn more, visit our Earning Credit Page

Transferring credit to the school of your choice

Not sure what college you want to attend yet? Study.com has thousands of articles about every imaginable degree, area of study and career path that can help you find the school that's right for you.

Create an account to start this course today
Try it risk-free for 30 days!
Create an account