The concept of the minimum wage has been one of the mechanisms governments employ to counteract the high cost of living caused by unfavorable economic conditions such as inflation. The minimum wage refers to the lowest earnings an employer should pay employees for the work done during a given period (Lavecchia, 2020). The minimum wage is not subject to reduction by agreement or employment contract between the employer and the employee. This paper analyzes the concept of minimum wage, including how it is developed and its economic purpose.
The Minimum Wage Concept in the United States
The concept of minimum wage in the United States originated during the development of the eugenic movement. This movement aimed to improve the genetics of human beings by promoting the desired characteristics and eliminating undesirable traits (Gherasim, 2018). By adopting the concept of minimum wage, the eugenics movement aimed to keep skilled workers in the economy and eliminate the unskilled labor mainly provided by immigrants and racial minorities. However, this approach was considered discriminative and was not adopted by the significant economic stakeholders.
At the end of the 19th century, legislation on minimum wage started emerging to improve workers’ wages, especially women and other minority groups, to enable them to afford the necessities of life. These legislations were strongly supported by politicians, religious institutions and civil rights movements to improve the lives of manual laborers and their working conditions. Since then, the minimum wage by the federal has been subjected to several changes, from $3.80 in 1990 to 7.25 in 2009 (Coviello et al., 2018). However, each state has the right to determine its minimum wage. When there are differences between the state and federal laws on the minimum wage, the highest salary prevails. Many states determine the minimum wage depending on their region’s economy to ensure that the workers are entitled to wages that align with the economic and living conditions of the states. For instance, while New York and Washington have the highest minimum wage of $15 per hour, Georgia and Wyoming have the lowest rates of $5.15 per hour (McGuinness et al., 2020). However, employees in such states are entitled to the federal minimum wage of $7.25 per hour.
Several groups are exempted from the law of minimum wage. These exemptions serve as incentives to allow companies to hire employees from these groups. The exempted groups include tipped workers, students, employees under 20 and people with mental and physical disabilities (McGuinness et al., 2020). The minimum wage for tipped workers is $2.13 hourly for those earning more than $30 tips monthly. However, when the monthly earnings of the tipped employees are below the minimum wage, the employer is expected to reimburse the employee for the shortage.
University students working full-time are entitled to more than 85% of the minimum wage and cannot work for more than twenty hours a week when school is in session. Students in technical programs must be paid at least 75% of the minimum wage. Employees below 20 years must undergo a mandatory three-month probation period in which they are entitled to a salary of $4.25 an hour (McGuinness et al., 2020). However, after the probation period, the employer must adopt the minimum wage by federal law. Lastly, employers can pay employees with disabilities less than the minimum wage because their conditions affect their production capacity.
The minimum wage is determined by the Fair Labor Standards Act and implemented by the Department of Labor. The government considers various factors when determining the minimum wage, including the needs of the workers and their families, the capacity of the employers to pay, the prevailing wage and income levels (Song et al., 2022). Workers’ needs influence the minimum wage based on the cost of living and demand for a better living wage. The employers’ capacity to pay the set minimum wage depends on the return on the capital invested and the employees’ productivity. Other considerable factors before determining the minimum wage include the Labor force survey, Gross Domestic Product (GDP) and the employment rate (Song et al., 2022). Additionally, the government must consider the country’s economic condition, including the inflation rate.
The legislative bodies should decide the minimum wage through a motion that the various committees of the Houses should second. When debating the minimum wage, it is essential to consider various factors, including the adverse effects of raising the minimum wage, including the positive and negative impacts. The minimum wage can hurt the economy, resulting in job losses due to a lack of the employers’ ability to comply with the mandatory wage (Song et al., (2022). Additionally, the minimum wage may lead to inflation and make the business environment less competitive.
However, the minimum wage boosts the economy by increasing consumer spending, making money circulate on the positive side. Besides, a higher minimum wage reduces hiring and training costs by increasing employees’ morale and reducing resignation rates. The minimum wage effectively promotes equality in the employment sector and protects vulnerable groups such as women and the youth from exploitation.
Therefore, the benefits and challenges of minimum wage should be seriously considered when determining the minimum wage to ensure that the benefits outweigh the challenges. The government’s amount is favorable to both the employees and the employers. Significantly, all the stakeholders are involved in determining the minimum wage.
Additionally, when determining the minimum wage, the relevant authorities need to consider the different economic models, including the supply and demand model, monopsony and welfare and labor market participation (Song et al., 2022). According to the supply and demand economic model, the increase in the minimum wage decreases the hiring of minimum-wage workers (Song et al., 2022). According to this model, increasing the function of the wage rate increases the firm’s cost of operations. For the monopsony model, the employer with the highest market influence has the power to determine the minimum wage. Lastly, the welfare and labor market participation model requires those actively engaged in the labor market to contribute fully to issues affecting the labor market, including determining the minimum wage.
In conclusion, the minimum wage concept is a mechanism to shield employees from exploitation and reduce the cost of living. Additionally, the minimum wage is essential in economic development by increasing consumer spending power, thus increasing money circulation in the economy. The department of labor is responsible for implementing the minimum wage. However, there must be legislation for committees of the house to debate the benefits and challenges of raising the minimum wage. Besides, the economic models should be considered to determine the best policy for implementing the minimum wage.
Coviello, D., Deserranno, E., & Persico, N. (2018). Minimum wage and individual worker productivity: Evidence from a large US retailer. Workforce Science Project of the Searle Center for Law, Regulation, and Economic Growth, Northwestern University, 29.
Gherasim, G. C. (2018). Race, Eugenics & American Economics in the Progressive Era. American, British and Canadian Studies, (31), 148-154.
Lavecchia, A. M. (2020). Minimum wage policy with optimal taxes and unemployment. Journal of Public Economics, 190, 104228.