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Minimum wage is a touchy, often political, subject and it is often misunderstood. I suspect not many HD readers are concerned with the minimum wage. On the other hand, I see implications of changing and not changing it.
Few workers actually earn the federal minimum wage. The percentage of hourly paid workers earning the prevailing federal minimum wage or less was 1.1 percent in 2023. Minimum wage workers tend to be young, single, work part-time, and have an high school or less education. Details are available from the Bureau of Labor.
Nearly 80% of minimum wage workers are employed in service occupations, mostly in food preparation and serving-related jobs. Interestingly, many also receive tip income not counted in hourly pay.
In large corporations such as Walmart, Costco, Verizon, GM, nobody earns the minimum wage.
Most states have a minimum wage requirement above the federal level. Raising the federal minimum wage would have minimal overall impact on American workers.
When I was 14 I earned below the minimum wage working for my town. When I was 18 I earned the minimum wage in my first job, but never again and like you I suspect trying to live on $7.25 or even $15.00 an hour would present a serious challenge. On the other hand, many retirees do so today. The annual equivalent of much talked about $15.00 and hour is $31,200 using the standard work year of 2080 hours. Household income could be double.
Thirty states have a minimum wage greater than the federal minimum, 13 states follow federal law and 7 have no minimum wage law effectively following federal law. Most of the states without a law are in the south.
The minimum wage itself is not the primary issue, rather it is what that income may buy. In other words, income relative to the cost of living in a state. For example, Alabama has a minimum wage of $7.25 and the average annual gap in the cost of living is estimated at $23,719. However, in California with a minimum age of $16.00, the gap is $52,737. The higher minimum wage may be less of a living wage.
There is somewhat of a debate as to whether a higher minimum wage contributes to a higher cost of living. However, to the extent businesses can pass along the added expense in prices and higher wages drive more demand for goods and services, a higher minimum likely does increase the cost of living. Could this mean that legally rather than economically driven higher wages can be counterproductive?
Raising the minimum wage has often overlooked implications – pay compression for one. Simply put, if a minimum wage goes from $7.25 to say $15.00, every worker earning $15.00 or above will demand higher pay. In theory, at least a near doubling of pay to maintain parity with the jobs previously paid $7.25. In addition, raising any wage carries added costs for a business such as payroll taxes, certain state employment taxes and in some cases employee benefit costs.
How to determine fair pay is an ongoing debate and no matter the direction there are consequences for everyone.
Thanks, Dick. Spoken like a true HR pro.
FWIW – my first job, long before OSHA paid $0.75 an hour picking up golf balls on the driving range. I was given a bucket and a stick with a cup on it. No cart with a cage, just me. Depending on who might be on the range at the time, the job could require some athletic ability.
My first job was $0.75 in 1958, a bit safer running a mimeograph at the town library.
If we believe in capitalism, then in an open market, workers are paid the economic value of their labor given the available supply of workers and the demand for their services. The economic value of someone who can write computer code is many times that of someone who, for example, is a grocery checker. Around here grocery checkers make around $16.48/hour, or $34,278 a year. Unfortunately, a studio apartment goes for $2074 per month on average or $24,888 per year. Because of the narrow profit margin that retailers make on the sale of groceries, when the cost of labor goes up, the store opens more self-checkout kiosks.
So, around here, when the minimum wage goes up, those who receive it can then afford a better tent.
This is the dilemma that can happen when we need workers to do mundane work, but the economic value of the work is low. Perhaps we need a basic societal subsidy paid to everyone funded by taxes to provide for basic living expenses such a food, housing, etc. Heaven knows, that left to the operation of the forces of the market, people will sleep in the parks and starve.