MINIMUM-WAGE EXPLAINER

02.15.13

Five Things You Didn’t Know About the Minimum Wage

FDR called it the second-most-important part of the New Deal, and now it’s back at the center of public debate. From what it takes to live on a minimum wage to who’s standing in the way of raising it, here are five key facts.

In Tuesday night’s State of the Union address, President Obama revived one of the most contentious battles in economic policy: the minimum wage. “Tonight, let’s declare that, in the wealthiest nation on Earth, no one who works full-time should have to live in poverty, and raise the federal minimum wage to $9 an hour,” Obama said to rousing applause from Democrats and stern frowns from Republicans.

“Minimum-wage laws have never worked in terms of helping the middle class attain more prosperity,” Sen. Marco Rubio shot back Wedensday, speaking for half of the political class that views a higher minimum wage as a threat to business growth.

There’s a reason the minimum wage is a contentious topic: it’s both highly symbolic, and research about its benefits is notoriously inconclusive. Since the beginning, liberals have seen it as a crown jewel in the fight to protect workers, while conservatives frequently cite studies that say a higher minimum wage doesn’t do much to the country’s poverty levels. So as the policy once again comes to the center of the political debate, here are five key facts about the history of and conflict over the minimum wage.

When did the U.S. first get a minimum wage?

The federal government established a minimum wage in a 1938 law called the Fair Labor Standards Act, which also marked the first time that employers were legally required to pay workers overtime for certain jobs. At the time the law passed, the country’s first minimum wage was $0.25 per hour (about $4 in 2012 dollars). President Franklin D. Roosevelt saw the act as the second-most-important piece of the New Deal after the creation of Social Security and called it “the most far-reaching, farsighted program for the benefit of workers ever adopted in this or any other country.”

The Fair Labor Standards Act has been amended twice, and the minimum wage is typically increased every few years, though, as President Obama highlighted in his State of the Union address, it has fallen far behind inflation. The minimum wage would have to be increased from $7.25 to $10.55 per hour to make up the value lost to inflation.

Is the minimum wage the same everywhere in the country?

No. The federal minimum wage applies to every state under Washington’s constitutional authority to regulate “interstate commerce,” but several states have passed their own laws to raise the minimum wage above the federal level of $7.25. Nineteen states have minimum-wage requirements higher than the federal level, and eight states’ minimum wages are higher than $8 per hour. Washington’s is highest at $9.19, followed by Oregon ($8.95) and Vermont ($8.60). Five states—all in the South—have no minimum wage laws of their own, and two (Arkansas and Wyoming) still have minimum wage levels on the books that are lower than the federal level.

Can you live on a minimum-wage job?

Maybe if you’re young, single, and live in the middle of nowhere. An annual salary for a person making $7.25 hour is $15,080, well above the U.S. government’s poverty threshold for a single person, which was $11,945 in 2012. But if you have two kids, the poverty threshold jumps to $23,283, which means that you’d need two adults working full time—which would likely require expensive daily child care—to stay out of poverty. If your job involves tipping, your situation is even more precarious: federal minimum wage for tipped jobs is only $2.13 per hour, based on the assumption that tips will make up the difference. If they don’t, you’re screwed: most of the time, restaurants and other service employers don’t make up the difference.

Who works for minimum wage in America?

In 2010, according to the Bureau of Labor Statistics, 4.4 million American workers were paid at the federal minimum wage or lower (some jobs are exempt). More than half of those workers are younger than 25, which means they’re likely teenagers and college students with part-time and summer jobs during school. Minimum-wage earners are a relative small slice of the American economy: of all workers who are paid by the hour, only 4 percent make minimum wage or less. Most of those who do work at restaurants and in other service jobs; “leisure and hospitality”—which includes hotels, resorts, etc.—has the highest percentage of minimum-wage workers (23 percent). Among U.S. states, Texas, Alabama, Mississippi, and West Virginia have the highest percentages of hourly workers making minimum wage.

So who’s against raising the minimum wage?

Conservative politicians and business lobbying groups. The business lobby blasted President Obama’s State of the Union proposal to raise the minimum wage to $9.00 per hour. “We should be focused on our country’s ‘no wage’ problem,” Business Roundtable president John Engler said. Marco Rubio denounced it after the State of the Union, and Republicans also pushed back, arguing that an increase would cause employers to cut jobs and reduce workers’ hours. Whether that’s true is difficult to say: some economists have argued that a higher minimum wage causes “disemployment,” but it remains a matter of debate. Some pundits think it’s too risky in an already weak job market, while others think a few lost jobs would be worth the benefit for the impact on low-income Americans.