In his State of the Union address to the United States Congress and the television-viewing audience around the world, President Obama called for an increase in the federal minimum wage as a way to reduce poverty. If you believe that business owners have a right to pay whatever the market will bear, minimum wages, whether endorsed by the federal government or the state, are unacceptable. If, however, you believe that left unchecked, businesses are in a position of power over employees who need jobs and can take advantage of that power, a minimum wage of some form is necessary to help balance that relationship.
The federal minimum wage and its law protects most, but not all, workers. In some cases, state minimum wage laws pick up where the federal law stops, in other cases, state laws supersede the federal law, and in yet others, the state depends on the federal law for its citizens.
Who qualifies for federal minimum wage
You’re covered by the federal minimum wage law and other provisions of the Fair Labor Standards Act if the following are true:
- You work for a federal, state, or local government agency.
- You work for a hospital or health organization.
- You work for a school, public or private, for-profit or non-profit.
- A company that sells more than $500,000 a year.
You could also be covered by the federal law if you work at a company whose business involves interstate commerce or domestic service. Domestic service includes a variety of jobs, such as cooks, janitors, housekeepers, nurses, gardeners, and regular babysitters.
State laws vary, but a state’s minimum wage could apply to a broader set of occupations.
If you have a position with a salary rather than an hourly wage, or you have a position in management, you might be exempt from minimum wage laws, like the overtime provision. Once my position at a former company in the financial industry surpassed a certain level, I was no longer eligible for overtime. A raise and a promotion resulted in an effective pay decrease because I had been working so many hours in addition to the normal workday.
Who earns minimum wage
The Bureau of Labor Statistics has organized statistics related to workers earning minimum wage throughout the country. Half of minimum wage workers are under 25 years old. This age group contains a wide variety of types of families, though. This includes teenagers working at their first job during high school, living with their two-income-earning parents within middle-class communities, but it also includes heads of young households in poorer communities for whom their minimum-wage work is the only form of income.
If you work part-time, 35 hours a week or less, you’re more likely to earn minimum wage than full-time workers. The biggest group of Federal minimum wage earners — and those earning less — work in the service industry, mostly in food preparation and service. It’s typical for servers to officially earn less than minimum wage, relying on tips from customers to reach the required minimum wage.
In total, 3.8 million Americans were earning wages at or below the federal minimum wage in 2011. The Bureau of Labor Statistics notes that this figure is a low estimate, because it does not include salaried workers, who can still be earning an income that is equivalent to an hourly wage at or below the federal minimum.
What we don’t see on these figures are workers earning just cents above the minimum wage. Large companies might pay workers slightly above the minimum wage, not much to make much of a difference in people’s lives, but in order for the company to avoid the appearance of paying its workforce wages that would keep its workers in poverty or near poverty. It’s a method of staying out of the statistics. Walmart, for example, pays its sales associates an average of $8.81 per hour according to independent research.
This average is higher than the federal minimum wage; in fact it’s significantly higher. But it’s still not enough for a full-time Walmart worker (or part-time, like many are, for that matter) to earn enough to live above the federal poverty line for a family of four.
What President Obama is proposing
The State of the Union gives the sitting President a chance to express his ideals and provide some clues about his (or her) political agenda for the upcoming year. Not only does President Obama want to see the federal minimum wage increased to $9 per hour, he would like the wage to be indexed to the cost of living. Here is what he said:
We know our economy’s stronger when we reward an honest day’s work with honest wages. But today, a full-time worker making the minimum wage earns $14,500 a year. Even with the tax relief we’ve put in place, a family with two kids that earns the minimum wage still lives below the poverty line. That’s wrong.
That’s why, since the last time this Congress raised the minimum wage, 19 states have chosen to bump theirs even higher. 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 an hour.
This single step would raise the incomes of millions of working families. It could mean the difference between groceries or the food bank, rent or eviction, scraping by or finally getting ahead.
For businesses across the country, it would mean customers with more money in their pockets. And a whole lot of folks out there would probably need less help from government. In fact, working folks shouldn’t have to wait year after year for the minimum wage to go up, while CEO pay has never been higher.
So here’s an idea that Governor Romney and I actually agreed on last year: Let’s tie the minimum wage to the cost of living, so that it finally becomes a wage you can live on.
The consequences of a higher minimum wage
The President points out that workers getting paid more means they have more money to spend, focusing on the economic side of the societal issue. For minimum wage families — not middle-class families with a teenager taking a part-time job to pay for his own car insurance — an increase in income will almost definitely be directed towards spending for necessities rather than saving.
With more money to spend among its customers, businesses catering to those with more money in their pockets will be able to justify price increases. And more than just minimum wage workers will have more spending money; an increase in the minimum wage tends to lead to pay increases for those earning somewhat more than the minimum wage, which in turn affects pay increases on a large scale.
Some businesses will have difficulty with this proposal. If a business relies on the availability of cheap labor, an automatic increase of wages, and we could be talking about an immediate raise of 24% from $7.25 to $9 if the new wage isn’t phased in over time (though it most likely would be phased in like the last minimum wage increase), certain business might need to cut back their workforce and increase productivity in order to meet the same level of profitability.
This comes at a time, after an economic recession, in a period where the employment market is still in the process of improving, when businesses are already trying to make the most out their employees without increasing human resources expenses through raises and additional hiring. Requiring the same or more productivity from a smaller workforce causes stress on employees and businesses, and stress results in lost work days and higher medical expenses, and the costs of both can affect a company’s bottom line as much as the wage increase.
Requiring businesses to pay a livable wage is a necessary part of having a society where citizens are able to thrive. Individual responsibility is important, though. I don’t want to have to rely on the government to dictate my wages. In addition to livable wages, as a society we need to encourage as many people as possible to get out of minimum wage situations. Family situations differ, and this isn’t always possible, and the minimum wage is important for those people.
Get an education or get the training you need to work in a career that will help you move towards financial freedom. Don’t have children until you’re financially viable for yourself, at least. These may be luxuries for families whose first and only concern is survival, but moving beyond the first level of Maslow’s hierarchy of needs.
Where do you stand on the issue of raising the minimum wage?
Published or updated February 13, 2013.