The purpose of minimum wage laws is to prevent employers from exploiting desperate workers. The minimum wage should provide enough income to afford a living i.e., the amount needed to provide enough food, clothing, and shelter.
The Fair Labor Standards Act (FLSA), set the first U.S. minimum wage in 1938. President Franklin D. Roosevelt passed it as part of the New Deal to protect workers during the Great Depression. The Depression had caused wages for many to drop to pennies a day. Roosevelt set the minimum wage at $0.25/hour.
Since then the most recent amendment to the FLSA was :-
The Fair Minimum Wage Act of 2007
It set these scheduled increases:
Before July 24, 2007 – $5.15 per hour.
From July 24, 2007 to July 23, 2008 – $5.85 per hour.
From July 24, 2008 to July 23, 2009 – $6.55 per hour.
On or After July 24, 2009 – $7.25 per hour.
Although the minimum wage protects workers from exploitation, it hasn't kept pace with inflation. Workers who earn a minimum wage today are paid around 27% less than their counterparts almost 50 years ago. If the minimum wage had been raised since 1968 at the same growth rate as average wages of typical U.S. workers, it would be $11.62/hour today instead of $7.25/hour.
Most countries had introduced minimum wage legislation by the end of the 20th century. Because minimum wages increase the cost of labor, many companies try to avoid minimum wage laws by using gig workers, moving labor to locations with lower or non-existent minimum wages, or by automating job functions.
PROs & CONs of the Minimum Wages
PROs:
Workers who can cover the cost of living have better morale. They are more productive if they have a decent standard of living.
A minimum wage spurs economic growth because it gives workers more money to spend. This increases demand and business revenue.
Workers who have more time and money can then invest in their education. It improves the attractiveness of the country's labor pool. A more educated workforce increases innovation and the number of small businesses.
CONs:
Minimum wage laws raise business labor costs. That's already the largest budget item for most businesses. When the government forces them to pay more per worker, they hire fewer workers to keep the total labor costs the same. This increases the unemployment rate. It hits low-wage workers the hardest since they must now compete for fewer jobs. Some smaller companies may not be able to operate with fewer workers. They may be forced to declare bankruptcy instead.
The minimum wage penalizes companies that are labor-intensive. By default, this rewards those that are in capital-intensive industries. Over time, this can shift the very fabric of the country's economic base.
Minimum wage laws may increase job outsourcing. Companies move their facilities to countries where labor costs are lower.
Pros outweigh the Cons as some research shows that a minimum wage can increase the number of jobs in an economy. But the pros only outweigh the cons if the minimum wage isn’t too high. Wages cannot be so high that they reduce a company's ability to keep labor costs low during a recession. In setting a minimum wage, the government has to find the sweet spot between protecting workers and giving businesses the flexibility they need to remain competitive.
Wrapping Up
One can conclude that the minimum wages should be increased, as the last amendment was done in 2007 and since then, the world has been changed drastically and the living expenses are also increasing every passing day. At 40 hours per week for 52 weeks, the minimum wage is calculated as $15,080 a year. That is more than the federal poverty level in the U.S for a single person but is lower than the poverty level for a family of four. In other words, if someone tries to support a family by making minimum wage, they would qualify for federal poverty assistance.
Written by - Atul Bihari Chakrawarti
Edited by - Prachi Raheja
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