Minimum Wage Problems
The Fair Labor Standards Act (FLSA) established the minimum wage in 1938. It was intended as a living wage on which one worker could support a family of four. The FLSA set a federally mandated minimum hourly rate for laborers and other employees. States cannot set a wage below that level, though 30 states and the District of Columbia have minimum wages above federal standards.
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Features
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Only amendments to the FLSA or passage of other legislation can increase the minimum wage. It is not tied to inflation or price hikes in necessities such as food, clothing, housing or health care. Workers who rely heavily on tips, including food servers and valets, can be paid less than minimum wage as long as wages plus tips equal or exceed minimum wage. Since minimum wage is not linked to inflation, wage earners often find their earning power diminished over time.
Function
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Statistically, a majority of minimum wage earners are women, and nearly three-quarters are over the age of 20. A slight majority of low-wage workers are the breadwinners in their households. Unemployment rates and job transience are most common among minimum-wage employees. Low-wage workers also benefit less from programs based on their wages like unemployment and defined-contribution retirement plans, such as the 401(k).
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Significance
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Minimum wage is a security net that primarily protects women, minorities, teenagers and the less educated from wage abuses by employers, although it does not prevent salary gaps between the highest-paid and lowest-paid employees. The average salary for a chief executive officer of a major corporation is more than 400 times the annual income of a minimum-wage worker. According to the Department of Labor, more than 2 million workers are paid minimum wage or less.
Effects
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Minimum wage is consistently below a living wage, or the amount of money necessary to raise a family. As a result, people in the lowest-income bracket are most likely to receive public assistance. According to the Department of Health and Human Services, 20 percent of low-wage workers receive government aid in the form of food stamps, Medicaid and energy assistance, all of which are supported by taxes. Minimum-wage workers also restrict spending, leading to suppressed revenue for businesses, particularly retail stores.
Misconceptions
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Increases in minimum wages can lead to inflation, but not consistently. A drop in prices followed wage hikes in 1996. Inflation is often driven by high-wage and middle-income earners willing to pay more for items. Raising minimum wage rarely leads to higher unemployment, but frequently produces decreased hours, particularly overtime, and offers employers the opportunity to hire people with more education. Increases in low-wage salaries fail to produce a better standard of living for the poor because families operating just above the poverty line do not boost spending.
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