What is the minimum wage?

Minimum wage in the United States: if the topic incites both your curiosity and confusion, read on for some facts, myth busters, and revelations.

What is the minimum wage and how is it established?

The Fair Labor Standards Act (FLSA) established the minimum wage at 25 cents an hour in 1938. It was last set seven years ago, in July of 2009, at $7.25/hour. To increase it, Congress would have to pass a bill that the President signs into law.

Generally, the law applies to organizations with sales or business of at least $500,000/year. To ensure workers receive the minimum wage, the U.S. Department of Labor enforces it with employers. Learn details of how FLSA is applied.

While there is a national minimum wage, some states have also set their own minimum wage. As of this date, 29 states and the District of Columbia have set a higher minimum wage. Where national and state minimum wages differ, employees are entitled to the higher wage of the two. See the minimum wage in all 50 states.

Exceptions to the minimum wage

Workers under age 20 can be paid a minimum wage as low as $4.25 during their first 90 straight days of employment, unless their work causes any other workers to lose their jobs. Once 90 days have passed, or if they turn 20, employees must get a boost to $7.25/hour.

The minimum wage for employees who earn tips uses a different formula. Basically, their federal minimum wage is $2.13/hour, providing they receive tips that bring their earnings up to at least $7.25/hour.

Special programs for other groups allow for payment lower than the full federal minimum wage. They are: workers with disabilities in certain circumstances, full-time students, and student-learners.

What happens if it goes up?

A minimum wage raise is under discussion to keep pace with inflation, particularly during this election year. Analysts note that most workers who would benefit from an increase in the minimum wage are adults; about 90% are age 20 +, and 56% are women.

Some concerns are raised regularly around the subject of raising the minimum wage. Research has provided insight to address these concerns with new information.

1)   Could raising the minimum wage cause newly hired employees and unskilled workers to lose jobs?

Past experience and current research by economists has shown there is little to no negative effect on employment when the minimum wage is raised. They also note that higher wages reduce employee turnover, which correlates to a savings for employers.

2)   How are small businesses affected if a wage increase goes into effect? Won’t it be hard for them to afford to pay higher wages to their workers?

According to a 2015 survey, 60% of small business owners see a gradual increase in the minimum wage as a stimulant to their bottom line. With more money in their pockets, low-wage workers will be able to spend on basics, creating more demand for products and generating more opportunities.

Economic experts weigh in on the minimum wage

It helps to hear specifics from the experts. More than 600 economists from policy centers and universities around the country signed a letter to President Obama and congressional leaders urging a minimum wage increase. They noted “the weight of evidence now showing that increases in the minimum wage have had little or no negative effect on the employment of minimum-wage workers, even during times of weakness in the labor market. Research suggests that a minimum-wage increase could have a small stimulative effect on the economy as low-wage workers spend their additional earnings, raising demand and job growth, and providing some help on the jobs front.”

Still curious? Read 7 Facts About the Minimum Wage on the U.S. Department of Labor Blog.

You can also learn about typical wages in your state and across the country with CareerOneStop’s wage tools and reports.