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 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.
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- 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
Federal Minimum Wage
Let's look at a chart showing how the federal minimum wage has increased over the years:
The grey line shows the minimum wage unadjusted for inflation; whereas, the blue line shows you what it would be worth in 2020 dollars. When first created, the minimum wage in 1938 was $0.25. Adjusted for inflation, it would be worth $4.65 today. The minimum wage had its lowest buying power in 1948, when it was worth about $4.40 in today's dollars. It had its highest buying power in 1968, when it was worth about $17.58.
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 45 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:
- Helping Families: In 1999, an Economic Policy Institute study revealed that nearly 40% of the minimum wage earners in the United States were working parents. To go even further, nearly 33% of the minimum wage earners are married couples, raising children. Without a minimum wage, these workers may be forced to work for less money.
- Reduced Tax Burden: A person making at least minimum wage is not using as many public services as someone receiving unemployment benefits, according to economics expert Professor Brock Haussamen. An unemployed worker receives welfare, rent assistance, and food stamps in many states. With minimum wage, the need for public assistance is lowered, and this reduces the tax burden on the community and the state.
- Employment Incentive: A minimum wage gives an unemployed person incentive to take a job because he knows what his minimum pay will be, according to economics website Economics Help. An unemployed person can compare the money he gets from public assistance to what he would be paid in minimum wage benefits and then is able to determine the financial incentive to getting a job.
Minimum wage is the amount of compensation an employee must receive for performing labor. In 1938, the federal government enacted the Fair Labor Standards Act. The act allowed Congress to set the federal minimum wage. States are allowed to set their own minimum wage, but those jobs paid at the state rate must meet certain requirements. Some of the advantages to having a minimum wage include helping families, providing an employment incentive, and reducing the need for government welfare programs.
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What is a Minimum Wage? - Definition & History
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