Minimum Wage: Facts and Proposals

In President Obama’s 2014 State of the Union address, the president made clear that raising the federal minimum wage is a priority for his administration. Currently pending in Congress is the “Harkin-Miller Bill,” which would raise the federal minimum wage in three $.95 increments to $10.10 by 2016 and set it to rise automatically with the level of inflation.

Although there are different ways to measure the value of the minimum wage, it is clear that the real economic worth of the minimum wage has dropped significantly in the past decades compared to inflation, the buying power of a dollar, the poverty line, the average American wage, and the productivity of the American economy. In January 2014, over 600 economists signed an open letter to Congress and the President on behalf of the non-partisan Economic Prosperity Institute, explaining that raising the minimum wage by just $2.85 per hour will provide higher wages for almost 17 million workers and benefit another 11 million by increasing wages for higher-earning employees. These economists agreed that an increase in the minimum wage will have little negative effect on the jobs market and in fact could boost the economy by as much as 85,000 new jobs.

The federal minimum wage was set at $7.25 in 2009 and has remained at this level ever since. States are free to mandate higher minimum wages, and many have done so: New York’s minimum wage rose to $8.00 effective December 31, 2013 with projected raises to $8.75 and $9.00 by 2015 and 2016, respectively. California’s minimum wage is currently $8 and is currently set to reach $10 by 2016. According to the Department of Labor, almost half the states mandate a minimum wage that is higher than the federal rate. Even some cities, such as San Francisco, have implemented a higher minimum wage.

Less well-known but important to many minimum wage workers is the “tipped minimum wage.” Under federal and most state laws, employers of workers who traditionally receive tips are permitted to pay a lower minimum wage as long as they fulfill certain requirements. Most importantly, the sum of wages plus tips must at least equal the regular minimum wage. The Harkin-Miller bill would also raise the federal tipped minimum wage to 70% of the regular minimum wage, a significant increase from the current $2.13, which is about 29% of the regular minimum. The federal tipped minimum wage has not increased in over 20 years. Certain states do provide for a tipped minimum wage that is higher than the federal rate and others do not permit employers to pay a lower tipped minimum wage.

In spite of federal and state law and the widespread national attention that this subject has received in, it remains common for employers, especially restaurants, to force wait staff to work solely for tips. This is blatantly illegal. Regardless of the amount that a server or other tipped employee earns in tips, all employees* must receive at least the minimum wage. Employers who fail to pay the correct minimum wage are liable not only for unpaid wages but also for liquidated damages and interest on the wages they should have paid. Paying the correct minimum wage is not only good for the economy, it’s good for business.

Paying the minimum wage is necessary, but it’s not the whole picture. At Pelton & Associates, we see cases where employees are cheated out of overtime, prevailing wages and commissions – and cases where an employer purports to pay the correct wage but requires employees to cover business expenses and deducts various improper charges from paychecks. No law can completely fix the wage problems that plague American workers, but the Harkin-Miller law is an important step toward lifting millions out of poverty.

*All employees who are not exempt from the protections of federal and state law. As a general matter, most minimum wage workers are not exempt from minimum wage and overtime laws.

Other Sources:

New York Times, $10 Minimum Wage Proposal Has Growing Support From White House

Economic Policy Institute, Over 600 Economists Sign Letter in Support of $10.10 Minimum Wage