The Fair Labor Standards Act (FLSA) that mandated a federal minimum wage was adopted by the Congress in 1938. Since then, the federal minimum wage has been increased 19 times, from 25 cents per hour in 1938 to $5.15 in 1997. No employer may legally pay, in industries and occupations the FLSA currently covers, less than $5.15 per hour. In 1996, 79.4 million wage and salary workers, 64.9 percent of all workers, were covered by the FLSA.1 In 1998 President Clinton proposed to increase the federal minimum wage from $5.15 to $6.15 in two 50-cent increments over two years. The federal minimum wage is complemented by state minimum wage laws that often mandate higher wage floors than the federal government.2
In 1996, President Clinton signed legislation raising the minimum wage by 90 cents from $4.25 to $5.15 an hour.3 This legislation followed heated debate among economists and policymakers about the effects of minimum wages on employment, skill formation (i.e., educational attainment and on-the-job training), and the economy. In fact, the debate stems from many different scholarly studies with contradictory findings.
This paper summarizes research on the effects of minimum wages on employment, skill formation, and welfare participation. It also highlights areas of consensus as well as disagreement in the literature and identifies important gaps in the research. The second section describes minimum wage workers' demographic and socioeconomic characteristics. The third section simulates the impact President Clinton's proposed minimum wage increase would have on low-wage workers' hourly earnings. In this section, recent research examining the effect of minimum wages on employment, skill formation (i.e., educational attainment and on-the-job training), and welfare participation is highlighted. The last section describes areas of consensus as well as disagreement in the literature and identifies future research topics.
- A disproportionate share of minimum wage workers are teenagers and most do not live in poor families.
- A sizable portion of minimum wage workers are poor parents.
- Negative employment effects, if any, appear to be slight and are difficult to detect.
- Minimum wages curb employer-provided training opportunities for low-wage workers and may reduce educational attainment for some at-risk groups.
- Moderate minimum wage increases will not reduce poverty rates.