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Minimum Wage

The Fair Labor Standards Act of 1938 (FLSA) is in a sense the basic law controlling employment and compensation issues in the United States. FLSA mandates that a minimum wage be paid, but the act classifies employees into two broad classes: those who are covered by the law because they are paid by the hour and those who are exempted because they are paid a salary. From this provision of the law we have the concept of “exempt” and “non-exempt” employees. All matters pertaining to the minimum wage are applicable only to “non-exempt” employees, i.e. those covered by the legislation. In addition to the federal minimum wage, state minimum wage rates are also in place.

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Rates And Coverage

The last upward revision of the federal rate took place in October 1996 as part of the Small Business Job Protection Act (SBJA) of 1996. The act increased the rate from $4.75 an hour to $5.15 per hour. The rate has not changed since. In early 2006, six states (Alabama, Arizona, Louisiana, Mississippi, South Carolina, and Tennessee) had no minimum wage. Fifteen states had higher minimum wages than the U.S. as a whole: Alaska, California, Connecticut, Delaware, Florida, Hawaii, Illinois, Maine, Massachusetts, Minnesota, New Jersey, New York, Oregon, Washington, and Wisconsin. The highest wage was in Oregon, $7.63 an hour; in 2006 Connecticut had a $7.40 per hour minimum wage to be raised to $7.65 in 2007. The rest of the states had the same minimum wage as the national rate. Under the federal rules, a non-exempt worker is entitled to receive the highest minimum wage available in the place where he or she works. Changes in state law are monitored by the U.S. Department of Labor and may be consulted at http://www.dol.gov/esa/minwage/america.htm.

Exemptions Estimates of the number of people earning the minimum wage are difficult to establish in part because exemptions to the law exist for certain classes of worker—some of whose earnings may actually be higher than the minimum wage although, officially, they make less. For example, family members of the employer may be paid less than the minimum wage. Also exempted are employers of the disabled if the disability affects the person’s ability to work. Such individuals are often employed in sheltered workshops and environments.

Full time students are not covered; students and apprentices part of whose work is learning need not be paid the minimum wage. Finally and most importantly, employees earning tips are exempted under the presumption that tips will make up the difference.

Statistics Reporting on data for 2004 from the Current Population Survey, the Bureau of Labor Statistics (BLS) found that 73.9 million Americans earned hourly pay, representing 59.8 percent of all workers earning wages and salaries. Of this total 520,000 earned exactly $5.15 an hour—but some 1.483 million other hourly workers reported earning less. The two categories combined (2 million) were 2.7 percent of hourly workers.

BLS pointed out that about 350,000 of those in the “under minimum” category reported earning exactly $5.00 an hour, which may have reflected mere rounding down from $5.15 by survey respondents. If so, the total number earning less would have been around 1.13 million people in 2004. The number tallies reasonably well with other BLS data which show that the largest category of those earning less than minimum wage (1.04 million individuals) worked in food preparation and serving occupations. The second largest such category were people working in sales and office occupations (104,000).

Taking the “at minimum or below” category, the leading industrial category was “leisure and hospitality,” employing 62 percent of all such employees. Of all those earning minimum wage or below, 51 percent were between 16 and 24 years of age, and nearly half of those were between 16 and 19. Part-time workers represented 62 percent of the total.

The data thus show that minimum wage workers are heavily skewed toward youth, part time work, and the restaurant/food, service/hotel sectors; in the aggregate they represent a small portion of the hourly work force.