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What is Minimum Wage?

Minimum wage is the lowest hourly wage allowed by federal and state labor laws. It generally applies to unskilled or semi-skilled laborers working in service industries or manufacturing plants. Certain occupations such as agricultural workers are usually exempt from minimum wage requirements, as are certain service workers who receive tips or other compensation equal to the minimum wage. In the United States, Congress must approve any adjustments to the federal minimum wage law currently in effect. Because of an act passed under the Clinton administration, individual states now have the right to raise their own minimum wage rates above the current federal requirement.

There hasn't always been a minimum wage law to protect unskilled or semi-skilled workers. Until the 1930s, individual wages were determined largely by employers. Workers had to accept whatever compensation was offered or simply remain unemployed. This didn't necessarily mean that all employers of that time paid extremely low wages, but the laws of supply and demand often led to the most desperate workers accepting low bids. Industrialists such as Henry Ford routinely offered higher wages to skilled or trainable workers, but the working conditions could be brutal and the workday lasted 12 hours or more.

Organized labor unions, along with the Democratic politicians who supported them, began to demand a standardized minimum wage for all workers. In 1935, President Franklin Roosevelt proposed the first federal minimum wage under his National Recovery Act. This act called for a minimum wage of 25 cents per hour. The Supreme Court struck down the National Recovery Act as unconstitutional, rendering the minimum wage unenforceable. In 1938, the Fair Labor Standards Act reinstated the same 25 cent federal minimum wage, along with the legal mechanisms necessary to adjust it over time. At first this act only covered a few transportaion and agricultural industries, but later amendments included service workers and general laborers.

There is no mandate to change the federal minimum wage rate, but members of Congress routinely request consideration for a raise. If an adjustment is approved, the minimum wage is generally raised in phases over the space of a few years. It has never been raised above the poverty level of a family of four with one working adult. The highest minimum wage based on real spending power was realized in 1968, when the average worker earned the equivalent of $18,000 by today's standards. This discrepancy between the poverty level and the real spending power of the minimum wage has led to more than a few heated debates between lawmakers.

Opponents of the current minimum wage system suggest that current wages discourage the working poor from improving their skills or seeking higher paying jobs. Certain jobs could be filled very quickly if workers were allowed to negotiate their own wages. Minimum wage workers also continue to qualify for many government programs such as food stamps, creating a dilemma for those who don't want to become reliant on social welfare programs but cannot earn a living wage. Many economists agree with this criticism of minimum wage law, citing the long-term problems of raising other salaries across the board to compensate for a raise in the minimum wage. Certain union-backed wages are specifically determined as a percentage above the current federal minimum wage.

Those who favor the federal and state minimum wage laws claim that workers are protected from exploitation by employers. By establishing a legal minimum wage for dangerous or physically demanding jobs, laborers can be assured of fair compensation for their efforts. As far as increases in the federal minimum wages are concerned, a rising tide lifts all boats. Historically, few jobs have been lost due to an increased minimum wage. When other salaries are adjusted upward to compensate, the result is often a stronger economy with higher consumer spending.

Both sides of the minimum wage issue present strong, well-supported arguments, but there has rarely been an organized effort to repeal the 1938 Fair Labor Standards Act which created it. The federal minimum wage and its effect on the economy continues to be debated by both Democratic and Republican lawmakers alike.
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