This article is written by Kishita Gupta, a graduate of the United World School of Law, Karnavati University, Gandhinagar. This article discusses aspects relating to the minimum wage in the US by reflecting on its history and analysing the current position relating to it.
This article has been published by Sneha Mahawar.
Table of Contents
How would you feel if you got $5 but your colleague who joined on the same day as you with the same qualification got $7 for the same work as you? Well, you will feel discriminated against. This is why the concept of minimum wages is important. It is the lowest amount of remuneration that the employees can legally pay to their employees. It not only provides a balance between unequal wages but also gives the labourers a surety of not being exploited by the employers. In this article, we will be dealing with various aspects related to minimum wages in the United States of America.
History of minimum wages in the US
The mills in Lawrence, Massachusetts, 120 years ago, were the origin of the minimum wage in the United States. Nearly a fraction of the woolen cloth made in the United States at the time was produced in its mills. However, the labour wasn’t free. More than half of those inside were women and children. Poor working conditions and low pay were present. The death rate in Lawrence was among the highest in the nation. Workers went on strike in 1912 when a 14-year-old child at one mill had his leg broken in an elevator. Two people died after police fought with strikers, while the third person was killed months later by a group of men who opposed his labour plan. A memorial for the three is located in a cemetery in Lawrence. Work and pay were forever altered during the strike. The first minimum wage law in the US was enacted in Massachusetts, although it only applied to women and children.
Soon after, the states of California, Colorado, Minnesota, Nebraska, Oregon, Utah, Washington, and Wisconsin passed their own minimum wage statutes. By the end of World War I, Arizona, Arkansas, Kansas, and Washington, D.C. had also joined them. However, the Supreme Court in Adkins v. Children’s Hospital (1923) overturned minimum wage regulations in 1923. The Court, with a ratio of 5:4, ruled that it is unconstitutional to fix minimum wages for women regardless of occupation as they interfere with the liberty of contract, which is guaranteed by the Fifth Amendment. The Great Depression shortly after aggravated the issues that American labourers continued to face in their daily lives. Then the nation re-elected former President Franklin Delano Roosevelt despite widespread poverty.
In a landmark ruling by the US Supreme Court in West Coast Hotel Company v. Parrish (1937), it was ruled by a majority of 5:4 that Washington State is allowed to impose regulations on minimum wages on private employers. According to the Court, this regulation was not a violation of the Fourteenth Amendment of the Constitution of America as claimed by the petitioners. This case overturns the judgment passed in Alkins.
The first US minimum wage was established in 1938 by the Fair Labor Standards Act (FLSA). It was enacted as a part of the ‘New Deal’ by President Franklin D. Roosevelt to safeguard workers during the Great Depression. For many people, wages during that period were as low as pennies per day. Due to this, Roosevelt established a $0.25/hour minimum wage. In order to stay in business during the Great Depression, businesses were forced to reduce wages and increase hours.
Child labour is yet another serious concern. A survey conducted by the Children’s Bureau of the US Department of Labor (DOL) at the time found that 25% of the 449 American children who participated were working 60 or more hours a week. President Roosevelt convened a special session of Congress in 1937 to discuss issues in the lead-up to setting the minimum wage as a result of growing public interest in the subject. The FLSA limited the workweek to 44 hours and prohibited forced child labour, in addition to setting the minimum wage.
The Portal-to-Portal Act amended the FLSA on May 14, 1947. This law was significant because it addressed some concerns about what the FLSA considers to be compensable hours worked. The U.S. Supreme Court had previously ruled on issues involving make-ready procedures in factories and underground transit in coal mines. The minimum wage was raised to 75 cents an hour for all workers in 1949, and its application was extended to include those employed in the air transport sector. In 1955, the minimum wage was raised to $1 an hour without any changes to its application.
For previously covered workers in the retail trade sector, the minimum wage was raised to $1.15 per hour in September 1961 and to $1.25 per hour in September 1963. For new employees covered by the Act, the minimum wage was fixed at $1.00 per hour in September 1961, $1.15 per hour in September 1964, and $1.25 per hour in September 1965. For newly covered nonfarm workers, the minimum wage increased to $1.00 an hour in February 1967, $1.15 in February 1968, $1.30 in February 1969, $1.45 in February 1970, and $1.60 in February 1971. For newly covered farm labourers, increases were halted at $1.30.
The US Supreme Court’s first attempt to construct a state sovereignty doctrine based on the wording of the Tenth Amendment to the Constitution of the US was in National League of Cities v. Usery (1974). The 1974 Fair Labor Standards Act amendments were challenged in this case, and the Court determined that the Act does not constitutionally apply to the states.
Later, the Supreme Court in Garcia v. San Antonio Metropolitan Transit Authority (1985) ruled that the fundamental concepts of federalism outlined in National League of Cities v. Usery were impractical and that the Commerce Clause made Congressional legislation over state laws subject to those laws. The Court determined that guidelines based on the arbitrary interpretation of what constitutes an ‘integral’ or a ‘traditional’ governmental function offered little to no help in evaluating the limits of federal and state jurisdiction. The Court argued that state sovereignty was maintained by the federal system’s structure, not by any ‘discrete constraints’ on federal power.
Consequently, Congress passed amendments amending how the FLSA applied to employees in the public sector, allowing State and local governments to provide their employees with 1 and 1/2 hours of compensatory time off in place of overtime pay for every hour of overtime worked.
What are the current minimum wages in the US
Since it was first established, the federal minimum wage has been increased 22 times, from mere cents to the current $7.25 figure. The Fair Minimum Wage Act of 2007 was the most recent change to the FLSA. It established these planned increases:
- $5.15 per hour prior to July 24, 2007.
- $5.85 per hour from July 24, 2007, until July 23, 2008.
- $6.55 per hour from July 24, 2008, until July 23, 2009.
- $7.25 per hour as of July 24, 2009, or later
President Joe Biden prioritised a government mandate for the $15 minimum wage during the election season and has continued to do so since taking office. Just after Biden took office, Democratic senators introduced the Raise the Wage Bill of 2021, which aims to raise the federal minimum wage to $15 by 2025. While Congress continues to do nothing about the minimum wage issue, President Biden signed an executive order raising the minimum pay for federal contract workers to $15.
The minimum wage for workers who receive tips
Tipped employees are those who typically get more than $30 in tips per month. Although the employer is permitted to count tips as part of earnings, they are still required to pay direct wages of at least $2.13 per hour.
In order to apply the tip credit provision, an employer must notify the employee in advance and demonstrate that, when direct wages and the tip credit allowance are added up, the employee is paid at least the corresponding minimum wage. If the minimum hourly wage is not met after deducting tips from the employee’s direct earnings and the employer’s direct wages of at least $2.13 per hour, the employer shall make up the difference. Employees must also keep all tips they get unless they take part in a legal tip pooling or sharing scheme.
The minimum wage for young workers
Young workers are generally those who are under the age of 20 years. For the first 90 consecutive calendar days of their employment with an employer, young workers are entitled to a minimum wage of $4.25 per hour, provided that their work does not result in the displacement of other workers. As of July 24, 2009, employees must be paid a minimum wage of $7.25 per hour after 90 continuous days of employment or when they reach the age of 20 years, whichever comes first.
Minimum wage exception to full-time students
For full-time students who are also working in retail or service businesses, agriculture, or schools and universities, there is the Full-Time Student Program. A certificate from the Department of Labor can be obtained by the company that hires students, allowing the student to be paid at least 85% of the minimum wage. The certificate further stipulates that the student may only work 8 hours per day, a maximum of 20 hours per week during the academic year and 40 hours during the summer, and that the employer must abide by all child labour statutes. Students must be paid $7.25 per hour once they graduate or permanently leave school.
Minimum wage exception to student learners
Student learners are high school children who have attained at least the age of 16 years. The exceptions are for those who have enrolled in vocational education. As long as the student is enrolled in the vocational education programme, the employer can acquire a certificate from the Department of Labor authorising payment of the student at a rate not less than 75% of the minimum wage.
Debate on raising the minimum wage in the US
As the above-mentioned image depicts, there is an inclination among American citizens toward raising the minimum wage. But before coming to a conclusion based on this data, let us first analyse some pros and cons of the raise.
Arguments in favour of raising the US minimum wage
Boost in productivity
An increase in wages also increases the morale of the workers as they get paid what they deserve. A study shows that minimum wages can increase labour productivity both at the firm level and across the overall economy, in addition to reducing wage disparity and channeling productivity increases into higher wages.
Reduction in income inequality
The enormous gap in how income is divided among individuals, groups, populations, social classes, or nations, partly due to structural racism or sexism, can be reduced while increasing the incentive to work. People who have historically been marginalised and who perform excessively low-wage employment would stand to gain disproportionately from the increase.
- Compared to white men, who would benefit 18%, Black and Latina women would benefit 39%;
- African American workers would benefit to the tune of 38%;
- Latino workers would benefit to the tune of 33%;
- Women who work would benefit by 32% (vs 22 percent of men).
According to a 2019 study by the National Women’s Law Center, for women working full-time in states with a minimum wage of $10 per hour or higher, the income gap is 34% less. This study highlights the potential value of even a modest minimum-wage rise.
Pew Research notes that the top earners have benefited most from wage growth over the years. According to a different EPI report, racial disparities in salaries between Black and White Americans have widened significantly in recent years, although hiking the minimum wage may help. According to 1966 research on the minimum wage increase, there was a considerable decline in the wage disparity between Black and White Americans, which is responsible for more than 20% of the income gap’s reduction. A stagnant minimum wage is unmistakably contributing to the nation’s expanding racial wealth divide.
Boosts economic growth and reduces poverty
The cost of living is more accurately reflected by a higher minimum wage. Because they have more money to spend and are less likely to default on loans, workers who are able to earn more than the cost of living to contribute more to the economy. This raises consumer demand, boosts sales, and reduces consumer debt, medical debt, and evictions. Thus, by increasing the minimum wage, a nation steps further toward economic growth.
The Congressional Budget Office’s report predicts that raising the federal minimum wage to $15 per hour would help roughly one million people overcome poverty and have an impact on over 2.7 million workers.
Given that so many people have fallen into poverty over the previous year and that 11% of adults now experience food insecurity, the pandemic has made the need for a minimum wage increase even more pressing.
Beneficial to small businesses
A higher minimum wage has a number of advantages for small firms that could more than outweigh its higher payroll costs. According to a CNBC survey, most small businesses can afford to absorb the increase in labour costs brought on by raises in state and municipal minimum wages in 2021. An increasing number of business owners are becoming aware of the advantages of paying their staff a fair wage, living wage, or even supporting a rise in the federal minimum wage.
But there are contradictory views on this particular point. An early 2021 National Federation of Independent Business (NFIB) poll found that 92% of small businesses believe that Main Street and its employment chances will suffer from a $15 per hour minimum wage.
Improves employee retention
As employees have less incentive to look for higher-paying employment elsewhere, increased wages may help employers keep their personnel. The bottom line of a company may benefit from reducing employee turnover. High turnover frequently results in increased expenditures for onboarding and training. Employers may be able to control some of the rising labour expenses with the money they save from reduced employee attrition.
Arguments against raising the US minimum wage
Private sector employment reduction
According to the NFIB Research Center, the Raise the Wage Act’s $15 minimum wage would result in the loss of approximately 1.6 million jobs in the private sector. Over the long term, the United States would lose more than $2 trillion in actual economic output.
A rise in labour costs
Businesses’ labour costs, which often account for a sizable amount of their budgets, increase as a result of minimum wage laws. When the government mandates that businesses pay more per worker, businesses often hire fewer people to maintain the same level of total labour expenditures. The unemployment rate then rises as a result.
Since they have to compete for fewer employment opportunities, employees with incomes at or below the federal poverty line are the hardest hit. Some smaller businesses would not be able to function with fewer employees and might be forced to file for bankruptcy.
Increase in outsourcing
An increase in minimum wages may lead to more job outsourcing. Corporations may choose to relocate their operations to nations with lower labour costs.
Who falls under the category of minimum wage workers
According to the Bureau of Labor Statistics, the proportion of hourly workers making the federal minimum wage or below decreased from 1.9% in 2019 to 1.5% in 2020. This data was initially gathered in 1979 when the unemployment rate was 13.4%. In total, 1.1 million workers in 2020 received pay that was at or below the $7.25 federal minimum wage.
People who make the minimum wage or less are typically young. Just under 20% of hourly workers were under 25, but they made up over 48% of those making the federal minimum wage or below. 2% of women and 1% of men who were paid hourly received a wage that was at or below the federal minimum wage.
The majority of hourly-paid workers—around 5%—in service occupations made the federal minimum wage or less. Leisure and hospitality had the greatest percentage of hourly workers making the federal minimum wage or below, at 8%.
State minimum wages in the US
The current federal minimum wage is $7.25 as per the FLSA Act. A state-wise chart for minimum wages is as follows:
|States with a higher minimum wage than the federal||States with the same minimum wage as the federal||States with lower Minimum Wage rates – the federal rate applies||States with no minimum wage rates – the federal rate applies|
|Washington – $14.49/hr||1. Idaho – $7.25/hr||1. Wyoming – $5.15/hr||1. Tennessee|
|Oregon – $13.50/hr||2. Utah – $7.25/hr||2. Georgia – $5.15/hr||2. Louisiana|
|California – $14.00/hr||3. Texas – $7.25/hr||3. Mississippi|
|Nevada – $10.50/hr||4. Oklahoma – $7.25/hr||4. Alabama|
|Arizona – $12.80/hr||5. Kansas – $7.25/hr||5. South Carolina|
|Alaska – $10.34/hr||6. North Dakota – $7.25/hr|
|Hawai – $10.10/hr||7. Lowa – $7.25/hr|
|New Mexico – $11.50/hr||8. Wisconsin – $7.25/hr|
|Colorado – $12.56/hr||9. Indiana – $7.25/hr|
|Montana – $9.20/hr||10. Kentucky – $7.25/hr|
|South Dakota – $9.95/hr||11. North Carolina – $7.25/hr|
|Nebraska – $9.00/hr||12. Pennsylvania – $7.25/hr|
|Arkansas – $11.00/hr||13. New Hampshire – $7.25/hr|
|Missouri – $11.15/hr||14. CNMI – $7.25/hr|
|Minnesota – $10.33/hr|
|Michigan – $9.87/hr|
|Illinois – $12.00/hr|
|Ohio – $9.30/hr|
|West Virginia – $8.75/hr|
|Virginia – $11.00/hr|
|Maryland – $12.50/hr|
|Delaware – $10.50/hr|
|New Jersey – $13.00/hr|
|New York – $13.20/hr|
|Connecticut – $14.00/hr|
|Vermont – $12.55/hr|
|Maine – $12.75/hr|
|Florida – $10.00/hr|
|Puerto Rico – $8.50/hr|
Source of information for the table – State Minimum Wage Laws | U.S. Department of Labor
One can also access the history of the minimum wage for each state in the USA since 1968 here.
Who ensures that minimum wages get paid
The U.S. Department of Labor’s Wage and Hour Division is in charge of enforcing the minimum wage. The Wage and Hour Division works to guarantee that workers get the minimum wage through both enforcement and public education initiatives.
There are offices for the Wage and Hour Division all around the nation. To access the list of these offices, click here.
Wage and Hour Investigators based all around the country work for Wage and Hour to enforce the FLSA. They carry out investigations and gather information on pay, hours worked, and other employment circumstances or practices in their capacity as Wage and Hour’s authorised representatives to ascertain if the law is being followed. Investigators may suggest modifying an employer’s hiring procedures if infractions are discovered to bring them into conformity.
It is against the law to dismiss an employee or treat them differently in any other way just because they made a complaint or took part in legal action under the FLSA.
With the exception of a willful violation, where a 3-year statute of limitations applies, the recovery of back pay is subject to a 2-year statute of limitations. In other words, back pay may only be collected within two years of the date the violations occurred, unless the violations were willful.
An investigation by the wage and hour division
Investigations are carried out by the Wage and Hour Division for a variety of reasons. Complaints can serve as the catalyst for inquiries. All complaints are treated in strict confidence; neither the complainant’s identity nor the specifics of the complaint are made public. The sole exception is when a complainant’s identity must be disclosed with that person’s consent in order to further an allegation.
Wage and Hour also choose particular businesses or industries for examination in addition to complaints. On occasion, a number of companies in a certain sector or location will be investigated. The goal in either scenario is to ensure that the laws are followed in those businesses, sectors, or communities. All investigations are carried out in accordance with established policies and procedures, regardless of the reason for them.
The following is the investigation procedure:
- An overview of the inquiry process will be given during a meeting between the Wage and Hour representative and the company representative(s).
- a review of the company’s records to ascertain which laws or exemptions apply to the operation and its staff. These documents might, for instance, illustrate the company’s yearly cash volume, the production, handling, or sale of commodities carried in interstate commerce, or the fulfillment of government contracts. It is to be noted that unauthorised people are not given access to an employer’s records.
- Examining time and payroll records, taking notes, transcribing, or making copies of data that is crucial to the investigation.
- private meetings with certain staff would be conducted as a next step. These interviews are conducted to confirm the accuracy of the time and payroll records, to fully describe a worker’s responsibilities in order to discover any applicable exemptions and to ascertain whether or not young people are actually employed. Normally, interviews take place on the employer’s property, but special arrangements may be made. Interviews with current and past employees may occasionally take place at their homes, over the phone, or through the mail.
- If violations have been found, they will be identified for the employer and/or the employer’s representative, along with any recommendations on how to fix them, if applicable. If there are unpaid wages, the employer will be required to pay them and may also be required to calculate the amount owing.
Legal remedies for minimum wage regulation
The following are the duties of the Department of Labor:
- To supervise the payment of any outstanding overtime or minimum wage payments owed to any employee.
- The Department may negotiate with employers for back wages and liquidated damages as an alternative to going to court.
- For violations of the FLSA’s minimum wage or overtime standards that are repeated and/or willful, as well as those involving child labour, civil money penalties may be imposed.
- Employers are subject to civil monetary fines for any breach of the minimum wage or overtime pay laws if they do so knowingly or frequently.
- Employers who breach the FLSA’s rules on child labour may be fined in civil court. If an employee who is a minor dies or suffers serious harm as a result of a violation, the penalties may be enhanced, and if the offence is found to be persistent or willful, the penalties may be doubled.
The FLSA carries a $10,000 maximum fine and criminal penalties for willful violations. If convicted again, the person might end up going to jail.
To whom do the minimum wage rules apply
A covered enterprise is any group of linked operations carried out by one or more people under one common direction for a shared business goal:
- Whose yearly gross volume of sales made or business conducted does not fall below $500,000 (excluding separately mentioned retail excise taxes); or
- Operates a hospital, a facility whose primary mission is to care for those who live there and who are ill or elderly or mentally ill; a preschool, an elementary school, a secondary school, or a college (whether run for profit or not for profit); or a school for children who are mentally or physically challenged or gifted.
- Is a public agency’s activity.
It is concluded that minimum wages are an important factor in eradicating poverty as they are the lowest amount of remuneration that employers are obliged to pay their employees, but on the other hand, after the pandemic, small businesses have suffered the most. The author suggests that different minimum wages can be decided by the government for different sectors, so it is a win-win for the labourers and the businesses that are still trying to recover from the after-pandemic economic situation. With regard to the implementation, a stricter policy can be put in place by the US government to ensure minimum wages are provided to all labourers.
Frequently Asked Question (FAQ)
Which states in the USA have a $15/hour minimum wage?
Currently, no state in the USA has a $15/hour minimum wage. However, the following states have made efforts to amend their existing regulations and bring in a $15/hour minimum wage policy:
- California from 2024.
- Connecticut from 2024.
- Delaware from 2025.
- Florida from 2026.
- Illinois from 2025.
- Maryland from 2025.
- Massachusetts from 2023.
- New Jersey from 2024.
- Rhode Island from 2025.
- Virginia from 2026.
- Washington from 2022.
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