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Just Explain It: Raising The Minimum Wage

Zelkadis Elvi

In last month’s State Of The Union speech, President Obama asked Congress to raise the federal 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 $9.00 an hour,” Obama said. “This single step would raise the incomes of millions of working families.”

According to the White House, raising the minimum wage would boost the earnings for 15 million American workers. The president’s plan would increase the current rate of $7.25 an hour to $9 in 2015. Mostly women and teenagers would benefit from the increase.

At this point, the president’s plan is only a proposal. The idea would have to pass a very partisan Congress with opposition from the business community.

Republican Representative Paul Ryan responded calling the increase "inflationary" and "counterproductive."

Which brings us to today’s Just Explain It.

What’s the history of today’s minimum wage law, and why do we have it?

The Fair Labor Standards Act was originally drafted in the early 1930s, but failed largely due to heavy resistance from business owners. Then, during the Great Depression in 1938, Congress passed a revised version. Its purpose was to keep workers out of poverty, and increase their purchasing power in order to spark the economy. Among other things, the law mandated that employees receive a minimum wage of at least 25 cents an hour and overtime pay.

Over the years, lawmakers approved increases to the rate 22 times. But there were two extended periods that he minimum wage remained unchanged.

The rate was frozen at $3.35 from 1981 to 1990, and then at $5.15 from 1997 to 2007.

There is no regular cost of living adjustment for minimum wage. And because of inflation, a dollar today isn’t worth what it used to be.

Presently we pay about $4.29 for what we spent a dollar on in 1975.

The last minimum wage increase was in 2009. That’s when the current rate of $7.25 was established.

Last year, a New York City minimum wage worker -- claiming single status with no allowances -- would have grossed $15,080. After taxes, that number drops to $12,367. Each weekly check would be $237.84.

Not all states are required to follow the federal hourly wage mandate. Minimum wage in 19 states plus Washington, D.C. is above the $7.25 mark. Washington tops the list of states at $9.19. There are 22 states at $7.25, while four set their minimum below the national rate. Five states, including Louisiana and Alabama have no minimum wage law.

But, whenever a state’s minimum wage differs from the federal law, the higher rate applies.

According to a Bureau of Labor Statistics report, 3.6 million workers were paid the federal minimum wage or lower in 2012. More than half of those workers were younger than 25-years-old. The study also showed that about 19% of hourly workers in the leisure and hospitality industry were paid at or below minimum wage.

Tipped employees are an example of workers who make less than minimum wage – $2.13 an hour. An employer can consider tips part of wages if the worker makes more than $30 a month in gratuities.

The federal minimum wage law was created to protect unskilled workers from unfairly low compensation. The debate now is whether raising the minimum wage will help or hurt those workers and the broader economy.

Did you learn something? Do you have a topic you’d like explained? Give us your feedback in the comments below or on twitter using #justexplainit.