If you listened to the 2020 presidential debates, you may remember certain controversial topics, such as how the coronavirus pandemic should be managed and who should replace Ruth Bader Ginsberg in the Supreme Court. However, there was another contentious matter you may have missed: minimum wage.
Since 2009, the federal minimum wage has sat at $7.25, and the question many economists, researchers, and even politicians are facing today is whether or not that number is sufficient. In recent years, the new rate that’s most frequently proposed is $15.00 an hour, more than double our current minimum wage. But to determine whether or not the federal minimum wage should increase — and if so, how much — it’s important to ask a few other questions first.
Read on to discover the history of America’s federal minimum wage, including its original intent, its evolution, and its possible future.
What’s Ahead:
How did minimum wage begin, and why?
Although Americans have reaped the benefits of a federal minimum wage since 1938, French workers in the silk industry were the first to introduce the concept more than 100 years prior.
In 1831, these workers went on strike to demand a fair and liveable wage, and while their efforts did not prompt action, the idea lived on. New Zealand became the first nation to set a minimum wage in 1894, and four years later Samuel Gompers, the founding president of the American Federation of Labor, began the conversation in America with his article titled “A Minimum Living Wage.”
Massachusetts eventually became the first American state to mandate minimum wage in 1912, and additional states, as well as industries and companies, followed suit throughout the next couple of decades.
Despite this progress, the Supreme Court slowed the growth of minimum wage provisions, arguing that they interfered with the Constitution. Then, in 1937, the Court experienced a change of heart, in what historians now refer to as “the Big Switch.”
In the case West Coast Hotel Co. v. Parrish, Justice Owen Roberts sided with the court’s liberal minority, resulting in a five-four decision that upheld Washington state’s minimum wage law. More importantly, this decision determined minimum wage laws do not violate the Constitution.
A year later, Congress passed the Fair Labor Standards Act (FLSA), which established our nation’s first federal minimum wage at $0.25 per hour.
How has the minimum wage changed over time?
Since 1938, Congress has raised the federal minimum wage a total of 22 times and expanded the FLSA to cover more workers and industries. Listed below is a brief timeline, covering some important moments in the history of the minimum wage.
- 1949 – Congress raises the federal minimum wage to $0.75.
- 1961 – Congress amends the FLSA to include more workers in the retail trade sector.
- 1963 – The Equal Pay Act ensures equal pay for workers covered by the federal minimum wage requirement, regardless of gender.
- 1968 – The federal minimum wage peaks in purchasing power, at $1.60 per hour.
- After 1969 – The federal minimum wage stops increasing with inflation.
- 1971 – Congress amends the FLSA to include all non-supervisory government workers.
- 1989 – Congress amends the FLSA to apply only to businesses with $500,000 or more in revenue, as well as small retail businesses when they engage in interstate commerce.
- 2009: – The federal minimum wage increases to $7.25, which has remained through 2020.
What is the current minimum wage?
Today’s federal minimum wage is $7.25, which last increased in 2009; however, many states have their own minimum wage laws, as well as some cities like Seattle and New York City.
In fact, there are 29 states — as well as the District of Columbia, Guam, and the Virgin Islands — with minimum wages that are higher than the federal minimum wage.
The District of Columbia has the highest minimum wage, at $15.00, followed by Washington at $13.69. The remaining 21 states have either a minimum wage requirement that equals the federal minimum wage (16 states, plus Puerto Rico) or no established minimum wage requirement (five states).
Is “minimum wage” the same as “living wage”?
The terms “minimum wage” and “living wage” have been used interchangeably, but they are far from the same.
First of all, as established above, the minimum wage is determined and enforced by the government; living wage is not. In addition, while the federal minimum wage was signed into law nearly a century ago, the most well-known living wage calculator was developed and introduced in 2004 by Amy Glasmeier, a professor at the Massachusetts Institute of Technology.
However, the most important difference between these terms is the process they use to develop rates. Glasmeier’s living wage calculator uses expenditure data from a specific state to:
“determine the minimum employment earnings necessary to meet a family’s basic needs while also maintaining self-sufficiency within that region.”
This includes costs for “a family’s likely minimum food, childcare, health insurance, housing, transportation, and other basic necessities (e.g. clothing, personal care items, etc.).”
Meanwhile, the federal minimum wage was developed primarily to prevent unethical business practices and keep American’s out of poverty. In 1969, the U.S. government adopted a formula designed by Mollie Orshansky, a family economist and food economist for the United States Department of Agriculture, as the official federal poverty guideline.
Orshansky discovered that the cost of food amounted to roughly one-third of a family’s total cost of living, after taxes. Consequently, she theorized, one could reasonably estimate a family’s total budget by multiplying food expenses by three.
Today, Orshansky is also known as “Miss Poverty,” and minimum wage laws, at the federal and state levels, roughly meet or exceed the poverty thresholds she developed.
Minimum wage today: a source of controversy
For decades, the minimum wage has provided protection and security for Americans, but today its efficacy, and future, is up for debate.
As the question of whether or not to raise the current federal minimum wage lingers in the spotlight, economists, researchers, and politicians are divided on the purpose of this legislation altogether. Should minimum wage be enough to provide Americans with a comfortable living or merely keep them above the poverty line? Should it be a sustainable, long-time salary or a simply starting wage?
Each side has ample evidence to support its claims, which may help us understand why the solution for this issue is not as simple as it may seem.
The argument for increasing the minimum wage to a living wage
The federal minimum wage has changed 22 times since 1938 and has expanded to encompass a great number of American workers. However, increases have been irregular and inconsistent, hindering the impact of minimum wage laws on some generations.
In fact, we’re currently experiencing the longest period without an increase, and since 1969 the federal minimum wage has stopped adjusting to meet rising inflation. While the costs for transportation, housing, food, and more have increased in recent decades, wages have essentially remained stagnant. As a result, workers today earning $7.25 are being paid 17% less than they would have been 10 years ago, and 31% less than their counterparts in 1968, when adjusted for inflation.
In order to make ends meet, Americans must work longer and harder today than identical workers from 50 years ago, and many still rely on government assistance. Unfortunately, even if the federal minimum wage rose to compensate for inflation, many economists indicate it would not be enough, and increasing the wage to $15 an hour may not be either. Based on a recent analysis from the National Low Income Housing Coalition, a worker would need to make $17.90 an hour just to afford rent for a one-bedroom apartment nationally.
The argument against increasing the minimum wage to a living wage
Many opponents agree that, of course, increased pay seems like a worthwhile economic endeavor; but some researchers have found the ripple effects of raising wages up to $15.00 could produce the opposite results intended.
In fact, recent studies predict increasing the minimum wage, specifically to $15.00 per hour, could actually hurt businesses, forcing employers to reduce hours, limit hiring, and even lay off employees to meet the minimum wage requirements. Opponents also fear too much regulation over wages could limit a free market economy and hinder competition and growth among businesses.
Another issue, opponents say, is the fact that living costs vary from state to state; they argue minimum wage legislation should be left up to the states, rather than the federal government.
According to the poverty guidelines from the U.S. Department of Health and Human Services, a two-person household would need to earn $17,420 each year to clear the poverty line. However, everyday expenses like gas, groceries, and housing fluctuate based on your location. For example, rent for a two-bedroom apartment in New Mexico costs roughly $847 per month, but in California, the average cost is nearly three times the amount, at $2,495! That’s $29,940 for rent alone each year!
Finally, those opposed to increasing the federal minimum wage, specifically increasing the wage to $15.00, encourage supporters to first consider incomes and poverty levels globally. Even with a minimum wage under $5.00 an hour, the United States would maintain its place among the top 20% of all global incomes.
What does the future of minimum wage look like?
Newly elected President Joe Biden is in favor of increasing the federal minimum wage to $15.00, but even still the future of minimum wage remains unknown.
In 2019, the U.S. House of Representatives passed the Raise the Minimum Wage Act, a bill that would increase the federal minimum wage to $15.00 by 2025. The bill has been stalled in the Senate, but 2021 has welcomed new members, which may lean counter to their predecessors. Nevertheless, the bill’s future is far from certain, as political parties in both the House and the Senate are divided fairly equally.
Whether the federal minimum wage changes in the near future or not, it’s important to manage the income you have now and save where you can. Financial apps like Chime® makes it a little easier with automatic savings. For instance, every time you spend using your Chime Visa® Debit Card*, Chime rounds up your payments and purchases to the nearest dollar, then adds the change to your savings account.^ You can also automatically transfer a percentage of your paycheck into your savings to reach your financial goals a little faster.1
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1 Save When I Get Paid automatically transfers 10% of your direct deposits of $500 or more from your Checking Account into your savings account.
Summary
The federal minimum wage is currently $7.25, and it’s remained there for more than a decade. This is the longest period the minimum wage has ever experienced without an increase, and in light of this reality, the future of this legislation is hotly debated.
Many supporters of increased minimum wage propose a new rate of $15.00 an hour to boost workers’ income closer to living wage estimates. Those in opposition suggest alternatives like $12.00 an hour or allowing the states to determine their own minimum wage laws.
Whatever change our country invites, its impact on American industries, businesses, and families remains controversial, and its future uncertain.
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