The technical definition of a minimum wage is the lowest amount of money that an employee can be paid in exchange for their labor. Although minimum wages are the legal norm across the world, there are a variety of opinions on what they should be that vary across countries. The minimum is linked to standard of living for low-wage workers; proponents of reform believe that poverty and inequality are linked to the state of the minimum wage.
The need for policy concerning wages arose during the Industrial Revolution, when workers, particularly women and young children, were exploited for long hours and low compensation (Nordlund 1997). Days as long as 14 hours and harsh punishments were common, for a wage as low as a penny an hour, in some cases.
During this time period, the first countries to establish minimum wage laws were Australia and New Zealand in the 1890s (Levin-Waldman 2015). In 1909, provisions that allowed the negotiation of fair wages were created in Great Britain when they passed the Trade Boards Act. The United States took much longer to develop similar minimum wage laws. In 1938, President Franklin D. Roosevelt created a federal minimum wage and overtime pay regulations through the Fair Labor Standards Act (FLSA), amongst other New Deal reforms. Today, wage law is enforced through the Wage and Hour Division (WHD), which is a branch of the Department of Labor.
Laws concerning wage standards were only obtained after decades of labor disputes. Since the creation of these standards, wages have fluctuated and adjusted to the cost of living, though there is much disagreement regarding whether these changes have been satisfactory over time.
Many critics believe that the minimum wage still does not allow for a livable wage. Economists and politicians disagree on minimum wage’s relation to market prices and unemployment rates. Most look to monetary inflation and how it devalues standardized wages over time. There are many existing arguments for adjusting the minimum wage to inflation to restore consumer purchasing power.
But how is minimum wage determined? Different countries have different approaches to this. In the United States, the minimum wage is set by the federal government, and can only be adjusted through Congress. Many European countries, such as Germany and Italy, utilize collective bargaining. Labor unions are responsible for negotiating wages in their respective industries to determine minimum wages (Grimshaw, Bosch, Rubery 2014). In Britain, the minimum wage is consistently adjusted based on the Low Pay Commission’s recommendations (Dickens 2015).
In the United States, the federal minimum wage was raised to $7.25 in 2009. However, certain areas, such as New York State and Washington, D.C., have set laws raising that minimum even higher in order to adjust for economic inflation. According to the Pew Research Center, the federal minimum wage was the highest in 1968, which equaled around $9 per hour (DeSilver 2017). This means that the current federal minimum in the United States has lowered over the years.
In the city of Seattle, city officials looked exclusively at living costs, such as medical and childcare costs. From this regional information, they calculated a recommended living wage of $15.99 per hour (2014). Based on similar longitudinal studies, many groups push actively for a $15 per hour minimum wage.
Many different groups argue for minimum wages that fit the context of their locations. Often, at least in the United States, the government and representatives do not comply with such demands. However, we should say that the current federal minimum wage is insufficient to afford basic necessities in most communities.
Gradually, higher minimum wages have been achieved throughout the country. Meanwhile, those who are skeptical of the benefits can observe the outcomes.
References:
- (2014). “Reversing the Trend: A Longitudinal Study of Living Wages and Minimum Wage.” Alliance for a Just Society. http://allianceforajustsociety.org/2014/05/reversing-the-trend-a-longitudinal-study-of-living-wages-and-minimum-wage/
- (2016). “What Should the Minimum Wage Be?” American Institute for Economic Research. https://www.aier.org/blog/what-should-minimum-wage-be
- DeSilver, Drew (2017). “5 Facts About the Minimum Wage.” Pew Research Center. http://www.pewresearch.org/fact-tank/2017/01/04/5-facts-about-the-minimum-wage
- Dickens, Richard (2015). “How Are Minimum Wages Set?” IZA World of Labor.
- Grimshaw, D., Bosch, G. and Rubery, J. (2014), Minimum Wages and Collective Bargaining: What Types of Pay Bargaining Can Foster Positive Pay Equity Outcomes?. British Journal of Industrial Relations, 52: 470–498.
- Levin-Waldman, Oren M (2015). The Minimum Wage: A Reference Handbook. ABC-CLIO.
- Nordlund, Willis J. (1997). The Quest for a Living Wage: The history of the federal minimum wage program. Westport, Conn.: Greenwood Press.