minimum wage

• Background: Fair Labor Act of 1938 established wage, Macroeconomic Theory predicts rise in unemployment
• Debate: People need living wages v. Bad for business
• Country Comparison: many European countries use collective bargaining
• Recent Legislation: Fair Minimum Wage Act of 2007

Background

• A national minimum wage was established in 1938 with the Fair Labor Standards Act at $0.25 per hour. President Clinton allowed states to set their minimum wages above the federal level. Since them, thirty states have raised minimum wages past the national level.
• Ohio, Oregon, Missouri, Vermont and Washington have linked their minimum wages to the consumer price index, which produces small annual increases in minimum wage rather than large increases every few years. Many people believe the economy adjusts better with this approach.
• Macroeconomic theory predicts that unemployment is linked to minimum wage. Employers can afford to employ fewer people when wages are higher than when employers set wages according to their needs. When minimum wage increases, employers must pay employees higher wages. If the employer cannot afford to raise all employee wages, some are laid off. The most vulnerable group is youth, who tend to be inexperienced and unskilled. Although there is no broad consensus between economists about the effects of minimum wages on youth employment, empirical evidence suggests that this group suffers most when minimum wage increases.

Debate

• The cost of living has increases and wages have not adjusted. The minimum wage in the U.S. is not a living wage.
• Wages will soon adjust to prices. Minimum wage hurts businesses and results in lay-offs.

Country Comparison

• 90% of countries have adopted minimum wage. Many European countries do not have minimum wage laws. Instead, they rely on employer groups and trade unions to agree on wages through the process of collective bargaining.

Recent Legislation

• Fair Minimum Wage Act of 2007, apart of the U.S. Troop Readiness, Veterans' Care, Katrina Recovery, and Iraq Accountability Appropriations Act, 2007, raised the minimum wage to $5.85 per hour on July 24, 2007. The act will also raise the federal minimum wage to $6.55 per hour on July 24, 2008 and to $7.25 per hour on July 24, 2009.