We all want an economy that provides a higher standard of living for low-wage employees. Some argue that raising minimum wages is the way to go. Others believe that it hurts the people it is intended to help, making it even harder for young and inexperienced employees to find job opportunities. Let’s look at how minimum wages appeared and where they are now.
Why is there a minimum wage?
The minimum wage is a topic of ongoing debate and has been since it was conceived and implemented in countries around the world starting in the 19th century. A minimum wage is a pay rate set by the local or federal government. It is designed to prevent people from being paid less than a certain rate.
Before the minimum wage, there was a rise in industrial factories with cramped living quarters, low pay, and harsh working conditions because employers had little to no obligations before their employees. Workers faced a take-it-or-leave-it attitude of employers and many were left with no choice but to try to survive. The Fair Labor Standards Act of 1938 was the first step towards the change.
How does the minimum wage work?
Many states are talking about raising the minimum wage to $15 an hour. So are some politicians in Congress. How does the minimum wage work? Would raising it help workers, or hurt them? Unfortunately for employees, most people do not realize the unintended consequences when the government starts setting pay rates.
Minimum wage or entry-level jobs are generally for high school, college, and those people seeking part-time work. They are the first rung on the employment ladder. These jobs often teach what one does not learn in school – important skills, like providing good customer experience, being prompt on delivering results, how to manage money responsibly and how to work well on a team.
What happens when those jobs when the government gets involved in setting the pay rate? For example, a typical minimum wage or entry-level job is in the restaurant industry, where profit margins are very low. In fact, the restaurant only makes $5 in profit for every $100 in sales. If the minimum wages are increased, the cost of employees goes up. Accordingly, employers either have to increase the price or hire less people to be able to pay fewer of them more.
There are, of course, opposing views and arguments. These people argue that low-wage workers cannot live on the federal minimum wage of $7.25. The higher wage would mean that poor families will have more money in their hands without turning for government programs and will spend this money, raising demand, and creating more jobs. Businesses will benefit from a smaller turnover. In general, raising the minimum wage creates a ripple effect throughout the economy – with positive and negative effects. However, let’s not dive into this topic in this article.
Minimum wage changes in 2020
A federal minimum wage is $7.25 an hour and has not been changed since the year of 2009, which cannot be said about state and local laws. State minimum wages vary greatly around the nation, ranging from $7.25 to $13.50 an hour. You can see the map of minimum wage differences in the United States effective as of 2020.
A record number of states, cities, and counties boost their baseline pay in 2020, giving raises to millions of low-wage workers. This means that almost 7 million workers got a raise on January 1, 2020 with minimum-wage increases. One of the main reasons for the pay increase is the rising cost of living. In fact, wage indexation allows connecting wages to an index representing the cost of living, so that they are automatically adjusted up or down as that rises or falls. There are currently 29 states where indexing is in effect.
West Coast cities, where the cost of living has soared, had the highest minimum wage raises. For example, the pay floor in Seattle is as much as $16.39 an hour, which is one of the highest in the whole country. If we look at raise percentage, the highest one is in New Mexico, where the baseline wage rose 20% to $9 an hour. For some people, this increase translates into over $1,500 in addition to their annual wage.
What do increases mean for employers? Employers have to pay their workers the highest minimum wages, whether it is local, state, or federal wage. Employers in the states that have made increases to the minimum wage will incur higher payroll expenses. There are only seven states that do not have a pay rate that is higher than federal or do not have a minimum wage at all.
Some states, though, made it easier on small employers and have set their minimum wage requirements slightly lower. One of these states is California, where companies with less than twenty-five employees will have to pay their workers at least $12.00 an hour (in comparison to $13.00 for larger employers). The other states are Minnesota and Nevada.
Additionally, there are several exceptions to the minimum pay requirements. These include individuals who have disabilities, tipped employees, as well as a younger generation of workers that covers full-time students, student learners, and individuals under twenty years of age in the first 90 days of employment.
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Author: Charles Lutwidge