Minimum Wage Basics http://www.dol.gov/whd/flsa/#min Fair Labor Standards Act (FLSA) establishes minimum

wage, overtime pay, recordkeeping, and youth employment standards affecting employees in the private sector and in Federal, State, and local governments. Covered nonexempt workers are entitled to a minimum wage of not less than $7.25 per hour effective July 24, 2009. Overtime pay at a rate not less than one and one-half times the regular rate of pay is required after 40 hours of work in a workweek.

SEE POSTER: http://www.dol.gov/whd/regs/compliance/posters/minwage.pdf

When federal law does not apply, the state minimum wage applies http://www.dol.gov/whd/minwage/america.htm

The History of the Federal Minimum Wage

Fair Labor Standards Act of 1938 Set the minimum wage at $0.25. For values by year see…

http://www.dol.gov/whd/minwage/chart.pdf For a brief history see…

http://www.time.com/time/magazine/article/0,9171,1912408,00.html

The federal minimum wage is not indexed to inflation. The wage only rises when Congress acts.

Consequently, the purchasing power of the wage declines in between the times Congress has raised its value.

Nominal vs. Real from

http://oregonstate.edu/instruct/anth484/minwage.html A federal minimum wage was first set in 1938. The graph on the next slide shows nominal (blue

diamonds) and real (red squares) minimum wage values. Nominal values range from $0.25/hr in 1938 to the current $7.25/hr. The graph adjusts these wages to 2010 dollars (red squares) to show the real value of the minimum wage.

Calculated in real 2010 dollars, the 1968 minimum wage was the highest at $10.04. The real dollar minimum wage (red squares) falls during periods Congress does not raise the minimum wage to keep up with inflation.

The minimum wage increased in three $0.70 increments--to $5.85 in July, 2007, $6.55 in July, 2008, and to $7.25 in July 2009.

Minimum Wages and Poverty

from http://oregonstate.edu/instruct/anth484/minwage.html

Multiplying the minimum wage by a work year of 50, 40-hour weeks gives the annual earnings that can be expected from a minimum wage job.

The real annual income from a minimum wage job is the blue bars on the following page. The red line is the poverty level real annual income for a family of four. Minimum wages have never been sufficient to raise a family out of poverty, if only one member of the family works.

Minimum Wage Coverage

from http://oregonstate.edu/instruct/anth484/minwage.html

"Minimum Wage Coverage" is the percentage of workers receiving minimum wage. Sources: U.S. Bureau of the Census; U.S. Department of Labor, Bureau of Labor Statistics; Statistical Abstract of the United States; and Survey of Current Business.

Economic TheoryThe Minimum Wage is a Price Control

There are two basic price controlsPrice CeilingsPrice Floors

Price CeilingPrice Ceiling - a government

mandated maximum price above which legal trades cannot be made.Impact: Creates a shortage of the good.Alternative rationing methods must be

employed.Examples of Price Ceilings

Lines at the Gas PumpRent Controls

Price FloorsPrice floor - a government mandated

minimum price below which legal trades cannot be made.Impact: Creates a surplus of the good.

Example: The Minimum Wage, Agriculture Policy of the Federal Government

Problems in estimating the impact of the minimum wage1. Nominal vs. Real wages: Cost of living must be

adjusted over time and across economic regions. The lower the cost of living, the greater the impact of a minimum wage.

2. Ceteris paribus: The problem of a growing economy.

3. Effect of uncovered sectors: Unemployment may not be increased if workers can find work elsewhere.

1. Not every firm is covered (generally small, intrastate firms are not)

2. Noncompliance is an issue

WILL RAISING THE MINIMUM WAGE HELP THE POOR? SOURCE FOR SLIDES 14-27 Presentation Title :

Poverty Lecture 10: Why are wage rates so low? Presentation Summary : Poverty Lecture 10: Why

are wage rates so low? Today’s Readings. Schiller Ch. 6: The Working Poor ; DeParle, Ch. 6: The Establishment Fails: Washington, 1992 ...

Source : http://www.nd.edu/~jwarlick/documents/Ch6WorkingPoor.ppt

Readings• Schiller Ch. 6: The Working Poor • DeParle, Ch. 6: The Establishment Fails: Washington,

1992-1994• (Optional, Newman, “Working Lives,” eReserves,

Ehrenreich, “Serving in Florida,” eReserves)

BASIC FACTS ABOUT THE MINIMUM WAGE (AS SEEN BY OPPONENTS OF INCREASES)

Most minimum wage workers aren’t poor”Who earns the minimum wage?

http://www.bls.gov/cps/minwage2008.htm http://www.epionline.org/index_mw.cfm Minimum wage workers tend to be young--only

2% of employees above the age of 25 average family income of a minimum wage

employee is over $43,000. Single parent or single earner in a family with

kids account for only 15% of minimum wage earners.

BASIC FACTS ABOUT THE MINIMUM WAGEOPPONENTS VIEW, CONT.

Minimum wage increases cause job losses Teenagers from well-to-do families crowd out

low-skill employees Black teenagers and young adults experience

four times more employment loss than non-blacks. elasticity of employment with respect to the minimum

wage for young minority males = -0.8

BASIC FACTS ABOUT THE MINIMUM WAGEOPPONENTS VIEW, CONT.

The vast majority of minimum wage workers move on to higher paying jobs as they accumulate experience. Two-thirds of minimum wage workers receive

raises within 1-12 months of hiring Annual median real wage growth for minimum

wage employees is nearly 7%

BASIC FACTS ABOUT THE MINIMUM WAGEOPPONENTS VIEW, CONT.

Raising the minimum wage decreases benefits and increases taxes. Minimum wage workers lose government

benefits like EITC, FS, and health insurance. The effective marginal tax rate sometimes

exceeds 100%

BASIC FACTS ABOUT THE MINIMUM WAGE(AS SEEN BY PROPONENTS OF INCREASES)

http://www.epi.org/publications/entry/issue_guide_on_minimum_wage/

The minimum wage increase to $7.25 (July 2009) raised the wages of millions of workers.4.5 million workers (4% of the workforce)

Minimum wage increases benefited the children of working families.~ 2.6 million children under 18

PROPONENTS VIEW, CONT.

Minimum wage increases benefited disadvantaged workers.63% of beneficiaries are women, the

largest group of beneficiaries 12% of working women would benefit

directly African Americans represent 11% of the

total workforce, but are 18% of workers affected

Hispanics represent 14% of the total workforce, but are 19% of workers affected

76% of the beneficiaries are 20 years or older

PROPONENTS VIEW, CONT.

38% of the benefits went to households in the bottom 20% that receive 5% of national income

More than half of families with a minimum wage worker earn less than $35,000 per year

Among families with children and a low-wage worker on average, the minimum wage worker

contributes (59%) of the family's earnings. 46% of minimum wage workers contribute 100%

of their family's earnings.Southern and Mid-Western states benefited

most.

PROPONENTS VIEW, CONT.

The recent minimum wage increase reversed the trend of declining real wages for low-wage workers.The inflation-adjusted value of the

minimum wage is 17% lower in 2009 than it was in 1968, and is less than through most of the period from 1961-1981.

Go to http://www.epi.org/publications/entry/tables_figures_data/ and study Table 3

PROPONENTS VIEW, CONT.

A minimum wage increase is part of a broad strategy to end poverty. Antipoverty effectiveness of the combination of

minimum wages and EITC falls when neither is indexed (see next slide)

PROPONENTS VIEW, CONT.

There is no evidence of job loss from the last minimum wage increase. Study by David Card and Alan Krueger most

often cited How do these authors explain this contradiction

to economics theory?