Following raises in 2007 and 2008, the federal minimum wage hasn’t budged since 2009, when the government set the wage at $7.25 per hour. At that rate, someone working full-time would make $15,080 before taxes. Considering the federal poverty line for a family of two is $16,460, it should come as little surprise that many American workers are pushing for an increase in wages.
In some cases, wages have risen at the state level, with the District of Columbia, Washington, California and Massachusetts ranking highest, respectively. As of November 2018, 21 states did not have a minimum wage higher than the federal rate, and some states reduce the minimum wage for tipped employees to as low as $2.13 per hour.
Understanding minimum wage in the U.S.
The federal minimum wage was established in 1938 by the Fair Labor Standards Act, and was amended in 1961, 1966 and 1990, each time expanding the right to more industries. According to a report from Rand Corporation, the federal minimum wage peaked in 1968, when it was $11.83 in 2018 inflation-adjusted dollars. A report from Business Insider revealed that, had the federal minimum wage increased at the same rate as worker productivity, it would be $19.33 today.
With a strong economy, workers might expect a pay raise, but so far that has not played out in reality. Since the turn of the millennium, workers in the lowest quarter of earners have seen a 4.3 percent increase in wages, per a 2018 report from Pew Research. Over the same period, workers in the highest tenth of earners have seen their wages rise by 15.7 percent.
As the unemployment rate continues to drop, the number of skilled workers looking for jobs will likewise decrease. This shifting paradigm gives low-earning workers more power at the negotiating table.
Knowing when to raise wages
When federal and state governments do not raise minimum wages, local jurisdictions have the authority to implement increases. According to the New York Times, Seattle, Los Angeles and San Francisco have passed legislation to raise their minimum wages to $15, and New York City is scheduled to match that figure at the end of 2018.
Employers that raise their wages before it’s legally mandated to do so can benefit from higher employee satisfaction and retention rates. In an economy with low unemployment, workers will look for another position if they cannot get their desired wage at their current employer. And with fewer skilled workers available, they’re likely to find those positions without much trouble. A higher wage could be the key to keeping workers happy.
In summary, employers should:
- Understand why workers want to see a higher federal minimum wage.
- Pay close attention to state and local minimum wage requirements.
- Determine if a higher wage would benefit their retention rates.
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