Monday, January 20, 2014

Minimum wage in the United States

The last several months have seen continuous protests and reports of companies like Walmart and McDonald's treating their employees unfairly, including the ostensibly unfair rate of pay (and of benefits) doled out to employees. It's easy to imagine that raising minimum wages constitutes a simple answer, but some argue that there are economic disadvantages to doing so. I'm certainly no economist, but I thought I would do a small amount of digging around to see what I could see about the history of minimum wage in the US and its current implementation. I'm not sure about the best way to fix low pay rates for those working at megalo-companies like MacD's and Wally World. Is it a pay raise? (Maybe. Almost certainly, in the short-term.) Is a path up the corporate ladder? (Goodness no.) Is it the re-thinking of our entire society? (YES! in my dreams, that is.) Maybe it's more about conceptualization of what minimum wage is there for, how raises should be implemented, and incentives like time and money for employees to take part-time courses. In any case, here's what I learned.

A (small amount) of historical background

The minimum wage for labor in the United States was first put forth in 1938 in the Fair Labor Stands Act (FLSA [1]). To put this in perspective, the first country to enact such labor standards was New Zealand, in 1894 [3]. Although typically-cited reasons for minimum wage laws include providing a sum commensurate with a frugal lifestyle and protecting sweatshop workers, the institution of such wage laws in the United States has a darker history. In 1938, the first national minimum wage of 25¢ was so high that it must have wiped out many of the industries currently paying lower wages, at the time. David Bernstein and Thomas Leonard write that such laws were often “…designed to exclude immigrants, women, and African Americans... [and] demanded the exclusion of various so-called “defective” groups from the American labor market” (p. 177 [2]). More specifically, Bernstein and Leonard point to acts created during the Great Depression, such as the Davis-Bacon act of 1931, which had a disproportionate effect on African Americans’ ability to procure work in certain industries; and many state-specific minimum wage laws formed specifically for women, who were de jure considered to be unequally deserving of pay for men’s work.

The federal minimum wage is currently set at $7.25, and there is no overt discrimination based on gender or race in its terms (though I hesitate to even mention the current state of affairs of minimum wage and immigration). Even so: the current rate does not apply to all full-time or part-time employees across the United States. In some cases, a higher state minimum wage will apply. In others, the federal wage may supersede the state wage, if the state wage is lower. But when exactly must the federal rate be considered? From the Fair Labor Standards Act of 1938 (FLSA): “The Act applies to enterprises with employees who engage in interstate commerce, produce goods for interstate commerce, or handle, sell, or work on goods or materials that have been moved in or produced for interstate commerce. For most firms, a test of not less than $500,000 in annual dollar volume of business applies (i.e., the Act does not cover enterprises with less than this amount of business). However, the Act does cover the following regardless of their dollar volume of business: hospitals; institutions primarily engaged in the care of the sick, aged, mentally ill, or disabled who reside on the premises; schools for children who are mentally or physically disabled or gifted; preschools, elementary and secondary schools, and institutions of higher education; and federal, state, and local government agencies.” The FLSA goes on to list individuals who are not covered, including people working at telephone companies, newspapers, “recreational establishments”, teachers, computer professionals, amongst others. I am not a lawyer. I likely am missing some of the jargon in here. But the FLSA, from the start, makes it clear that not everyone is treated equally.

Minimum wage by state today

Let’s get a sense of the spread of minimum wage across states. As with federal wage laws, each state may impose its own laws on when these wages apply. A total of 22 states have imposed wages higher than the federal minimum wage of $7.25. The top payers include Washington state ($9.32) and Oregon ($9.10). An additional five states also boast minimum wages above $8.00 (Connecticut, Illinois, Nevada, New Jersey, Vermont) along with Washington, D.C., currently clocking in at $8.25, but with a promise to increase its minimum wage to $11.50 by the year 2016 [2]. Another five states (California, Colorado, Massachusetts, New York, and Rhode Island) have their minimum wages set at $8.00.

Which states have opted to impose set minimum wages, but below the federal rate? Only four. Arkansas and Minnesota have rates of $6.25 and $6.15, respectively, and Georgia and Wyoming are perhaps stuck in another decade with rates as low as $5.15. The remainder of the states who impose a minimum wage (a total of 20) sit right at the federal minimum wage of $7.25.

Before doing some background reading for this post, I had no idea that there are currently states which do not impose their own minimum wage at the state level. Geographically, these are all southern states east of the Mississippi River: Alabama, Louisiana, Mississippi, South Carolina, and Tennessee.

One thing that seems immediately clear is the resistance of southern states to conform to the national standards of minimum wages. Considering the deep roots of the system, since its inception, discriminating against groups performing particular jobs in those regions (read: minority groups performing low-wage employment in the South [2]), perhaps this modern trend should not be surprising.

Interim summary

So, here’s what I’ve learned so far: States vary considerably in what they consider to be a fair minimum wage. Federal laws don’t include everyone, even today. Historically speaking, stamping on a minimum wage was a good way to quit paying people doing “lesser” jobs, and it likely had a hand in wiping out certain industries. But of course, there is a quite defensible side to enacting minimum wages, and that is to ensure that people make at least a living wage.

I’d be interested to hear about the parents, each making $15k (what the federal rate would put you at, roughly), raising two kids on that wage. Not to mention the single parent tasked with the same set of circumstances. Skilled labor markets are so nearly obsolete that I scarcely dare say they are “on the decline”. Folks who don’t have the resources and privileges (and sometimes, luck) to embark on a path (academic or otherwise) to a different lifestyle and/or career are without many options from the days of skilled labor and industry. And what are many left with? Jobs in the service industry that rely on the minimum wage. Maybe that’s enough of my ranting for now, but I think of this post as a “Part 1.”

Sources:

1. United States Department of Labor. Minimum Wage Laws in the States. Accessed 20 January 2014. Available online: http://www.dol.gov/whd/minwage/america.htm
2. David E. Bernstein & Thomas C. Leonard. 2009. Excluding unfit workers: Social control versus social justice in the age of economic reform. Law and Contemporary Politics, 72(3), 177-204. Accessed 20 January 2014. Available online: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1533570
3. Gerald Starr. 1993. Minimum Wage Fixing: An international review of practices and problems. Accessed 20 January 2014. Available online: http://www.ilo.org/public/libdoc/ilo/1981/81B09_266_engl.pdf
4. Ned Resnikoff. “D.C. raises its minimum wage.” MSNBC. Accessed 20 January 2014. Available online: http://www.msnbc.com/all/washington-dc-minimum-wage-hike