November 12, 2018 in 376 words

How Does the Minimum Wage Impact the Economy?

The federal minimum wage provides compensation increases at a different rate than inflation increases, leaving many workers behind economically. However, increasing pay too dramatically can have negative impacts.


When the United States first set a minimum wage through the Fair Labor Standards Act of 1938, the hourly rate sat at 25 cents. Prior to that, during the Great Depression, people facing up to a 25 percent unemployment were desperate for work, so employers could take advantage and pay very little. The minimum wage was then established to prevent that exploitation, said David Cooper, senior economic analyst and deputy director at Economic Analysis and Research Network at the Economic Policy Institute.

Without a wage floor, employers would continue to pay less and less, destroying the purchasing power of the consumers who would make less money, Cooper said. The minimum wage then helps mitigate that imbalance of power between employers and low-wage workers.

That 1938 rule underwent revisions, including a periodic raising of the federal minimum wage, which rests at an hourly rate of $7.25, where it was set in 2009, according to the Department of Labor. Some states and cities took it upon themselves to raise their minimum wages to much higher rates, such as New York City, which will have a $15-per-hour wage by 2018.

As municipalities, unions and advocates push for a higher minimum wage to reduce poverty, many business leaders push back out of fear that their businesses will flounder when having to increase payroll costs.

Although wages rose by $7 since 1938, purchasing power differs dramatically over time. When adjusting for inflation, today’s federal minimum wage is about the same as in the 1950s. At its highest point in 1968, the minimum wage equaled $10.90 in 2015 dollars, more than $3 off from current pay. Advocates for higher wages say today’s minimum wage is not a living wage. “Part of the problem is that we’ve let the minimum wage erode for so long that that gap has grown substantially such that now it’s hard to even consider bringing the federal wage floor up to a level that would allow someone to have a decent quality of life wherever they may live,” Cooper said.


Ed. More tomorrow? Probably. Possibly. Maybe. Not? Today’s a Groundhog Day. It will happen again.