Federal Minimum Wage Rising This Week

by Ryan Guina

The Federal Minimum Wage increases $0.70 per hour on Tuesday – from $5.15 to $5.85.

Here are some facts about the current Federal Minimum Wage:

  • The minimum wage will increase 70-cent on July 24 for each of the next two years, capping in 2009 at $7.25 an hour. That equates to just above $15,000 annually before taxes for a 52-week work year.
  • Earning the new Federal Minimum Wage of $5.85 an hour equates to an income of $12,168 a year before taxes. This is just above the federal poverty level for singles which is $10,210. The level for couples is $13,690, and a family of three is $17,170.
  • At least 25 states and the District of Columbia have minimum wages higher than the federal rate. Individual cities can also set their own minimum wage. The highest state is Washington at $7.93, the highest city is Santa Fe, New Mexico at $9.50. Here is a list of U.S. state minimum wages.

Why raising the minimum wage is a good thing: The last time the minimum wage was raised was over a decade ago and this raise is long overdue. Many minimum wage workers are currently living near or below the poverty level, and many work multiple jobs to make ends meet. After taxes there is not much left to pay for essentials such as food, shelter, clothing, etc. When you add the fact that a gallon of gasoline costs over half of what a minimum wage earner takes home per hour, you get a good idea that $5.15 per hour is not very much money.

Why raising the minimum wage is controversial: The controversy that surrounds raising the minimum wage comes from the argument that raising the minimum wage will lead to rising costs for food and consumer goods and eliminate jobs. Well, in my opinion, the costs of food and consumer goods have been rising steadily for some time now… it’s called inflation! I don’t think this raise in the minimum wage will have a big effect on the number of jobs either. Businesses will always find a way to make things work. What this hopefully leads to is increased efficiency from a business and management perspective.

I support raising the federal minimum wage. Granted, $0.70 is not a huge increase, but to those who earn minimum wage, it makes a big difference. People deserve to earn a decent wage, and I think this series of raises is a good step in the right direction.

Published or updated December 9, 2010.
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1 Eric

I hope you’re open to a dissenting opinion on minimum wage.

A minimum wage is like putting pressure on a wound that needs medical attention.

The Argument: Increases in Minimum Wages Means Higher Prices
While this might sound like an argument FOR minimum wage, it is not. Prices increase for three particular reasons. 1. Inflation, which is the de-valuing of your dollar. Cause: The Federal Reserve printing money and Bank Loans (through fractional reserve banking). 2. All else constant (Yikes! Am I becoming an economics teacher?), demand for a good or service increases caused by any number of reasons. 3. All else constant, supply for a good or service decreases again caused by any number of reasons. Price increases are not caused by minimum wage increases.

Next Argument: Increased Minimum Wage Helps the Poorest
While this might be true in a fantasy world, it doesn’t apply here. As a matter of truth, it does exactly the opposite. The majority of those working minimum wage jobs are people whose incomes supplement the main household income. (e.g. high school student) These people are not at the bottom of the wealth totem pole.

Finally: Unemployment
After a minimum wage increase, the cost of unskilled labor increases. This is just an effective price floor. Basic economics shows that any price floor above equilibrium price causes a surplus. In this case, a surplus of labor also known as unemployment. Hopefully this new minimum wage will have a minimal impact on unemployment because of the complementary tax breaks to businesses.

It doesn’t make sense for the government to do this. What it earns from possibly higher tax revenues, it pays out through unemployment benefits and tax breaks to businesses. Heaven forbid there should be a net loss to the government. The best way to help the poor is to stop the fractional reserve banking system and stop printing new money(easier said than done, I know).

2 Ryan

Hi Eric,

The reasons you listed are based on your studies of economics priciples. I do not have the background you have, so I will not attempt to argue economic pronciples.

To answer your arguments:
1. “Price increases are not caused by minimum wage increases.” (quote from your comment) Why is this an argument against the Federal Minimum Wage?
2. If the people at the bottom of the ‘wealth totem pole’ aren’t working minimum wage jobs, what are they working? If they are not working, a minimum wage job would be better than nothing, so it would proportionally help those willing to take on the work.
3. Unemployment: In many states the minimum wage is currently higher than the Federal Minimum Wage, and I have not heard of rampant unemployment in those states. I hope not too many people will lose their jobs over $28 per week. (40 hours a week x $0.70 = $28).

In my opinion, this is such a complex issue that volumes of books could be written to study the pros and cons of the situation. None of those volumes of studies would do anything to help out those who earn minimum wage, and it is likely the money spent on the studies could have been put to better use in other venues.

The truth of the matter remains: Even if you could wave a magic wand and correct the causes of inflation from today forward, there would still need to be a correction to the minimum wage which was last raised over a decade ago. This raise and the two that follow are an attempt to help correct the gap between inflation and what mimimun wage workers earn. It is not a fix-all, but it is a step in the right direction.

Thanks for the great comment, and I always welcome dissenting opinions. 😉

3 Jason Dean

I agree with Eric. There is no need for ANY federal minimum wage, given the states have their own, often higher, minimum wages. It is mostly political posturing. Furthermore, I’m fairly confident that a federal minimum wage is illegal. Where in the Constitution is the federal government authorized to regulate wages? I sure don’t see it.

And I’ll go further and say that I don’t think the minimum wage at any level — federal, state, or local — is a good idea. Not $7.50, not $5.15, and not $1. Wages should be determined just like prices are — by supply and demand — and they should be mutually agreed upon by the employer and employee, without the government interfering.

In fact, I’ll go as far to say that all wages would be higher if there were no minimum wage. This is because there would be more economic growth, more overall prosperity, and eventually, this would make the minimum wage even more irrelavent than it is now. If, right now, there is a business who could afford to pay a laborer $5 an hour to do a menial task, and there is a laborer with no other skills who would be happy to get paid $5, then why should it be outlawed? It makes no sense.

4 Ryan

Jason, I understand your views, and to a point, I agree with you on some of them. However, there are some points I do not agree with. If the raise were limited to $0.70, it would be political posturing. But over the course of 2 years, workers are receiving what amounts to almost a 50% raise. That is real money and helpful to those who earn little.

Even though a 50% increase is a large percentage, it will not solve every money issue for minimum wage earners. Many people have money problems not because of how much they earn, but because of how much they spend (granted basic living expenses eat up a larger percentage of minimum wage earners’ income than others). But it doesn’t matter how much you earn if you spend more than that amount. That goes for minimum wage earners as well as millionaires. (See MC Hammer or Michael Jackson).

Most states do have their own minimum wage, but there are 5 states without any minimum wage. Kansas has the lowest minimum wage of any state, which is actually lower than the federal minimum wage. The Federal Minimum Wage applies for those states without a minimum wage, or if their minimum wage is lower than the Federal Minimum Wage.

The Federal Minimum Wage is legal, though the Constitution does not specifically spell it out. There are many laws not spelled out in the Constitution; the Supreme Court is employed to interpret these rules for legality. In 1933 there was a minimum wage law that passed as part of the National Industrial Recovery Act which was declared unconstitutional in 1935 and abolished. The current Federal Minimum Wage law was made legal by the Fair Labor and Standards Act of 1938.

I do not agree with having no minimum wage. Under the current system there are too many people who would be taken advantage of and who would be put in situations where they would have no way out.

For example, think back to the coal mining and factory towns around the turn of the century that paid their workers in scrip, coupons, housing plus food, or a combination of any of these. An absence of minimum wage would allow employers to pay their workers a small amount of legal tender currency, and pay the rest of the earnings in a form of payment that would only be good for use in their stores or on their properties. These monopolistic enterprises are never good for any economy and legalizing this type of system again would effectively open the US workforce to a new version of indentured servitude.

At one point in our nation’s history these types of working and living conditions were common. Thankfully, current laws prohibit this type of arrangement between worker and employee. Even today, many people would accept these conditions because it would be a guaranteed job and they would have their immediate needs taken care of. You can also bet that many immigrants or illiterate workers would be tricked into signing agreements that would keep them under these conditions for long periods of time.

In my opinion, removing the minimum wage system would put our country into a social regression and would have a negative effect on the economy of our nation as well as the rest of the world.

Of course, this is just my opinion. Thanks for the great comment, Jason. 😉

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