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Minimum Wage

THE MINIMUM WAGE is the lowest salary that governments allow employers to pay employees. Most of the nations in the world have minimum wage laws. In the European Union, 18 of the 25 member states enforce national minimum wages. Many other countries, including Austria, Denmark, Finland, Italy, Germany, Norway, Sweden, and Switzerland, have no minimum wage laws, but have strong trade unions, which set minimum salaries through collective bargaining.

Supporters of minimum wage laws believe that it is a matter of social justice, that the minimum wage helps reduce exploitation of workers, and ensures that workers can afford the basic necessities of life. Detractors of the minimum wage, which include most members of the American Economic Association, contend that a minimum wage increases unemployment among low-wage workers and harms the poorest workers. In particular, researchers indicate that increases in the minimum wage increase the unemployment rate among the teenage African-American community. Detractors of the minimum wage believe that employers and employees should be able to negotiate a price for labor independent of government interference.

Many economists also argue that the minimum wage slows economic growth. On both the left and the right, many believe that the earned income tax credit (EITC) is a more efficient way of delivering benefits to the working poor than a minimum wage. The EITC does not increase unemployment and delivers benefits only to poor workers, not all low wage workers.

History

In 1912, Massachusetts organized a commission to recommend non-compulsory minimum wage rules for women and children. Within eight years, at least 13 U.S. states and the District of Columbia had passed minimum wage laws. The Lochner era U.S. Supreme Court consistently invalidated compulsory minimum wage laws. Such laws, said the court, were unconstitutional because they interfered with the ability of employers to freely negotiate wage contracts with employees. The first attempt at establishing a national minimum wage came in 1933, when a $0.25 per hour standard was set as part of the National Industrial Recovery Act. However, in the 1935 court case Schechter Poultry Corp. v. United States, the U.S. Supreme Court declared the act unconstitutional and the minimum wage was abolished.

The minimum wage was re-established in the United States in 1938 (pursuant to the Fair Labor Standards Act), once again at $0.25 per hour ($3.22 in 2005 dollars). It had its highest purchasing value ever in 1968, when it was $1.60 per hour ($9.12 in 2005 dollars). President George W Bush on May 25, 2007, signed a new minimum wage law increasing the minimum wage incrementally to $7.25 per hour by July 24, 2008.

As of 2007, 29 states had minimum wages above the federal level. Community organizing efforts initiated by the Association of Community Organizations for Reform Now were responsible for the increases in some states including Florida, Nevada, and Ohio. Some government entities, such as counties and cities, observe minimum wages higher than the state mandates. One notable example of this is Santa Fe, New Mexico, whose $9.50-per-hour minimum wage is currently the highest in the nation. Another device to increase wages, living wage ordinances generally apply only to businesses that are under contract to local governments.

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