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The minimum wage:
its relation to incomes and poverty
Federal minimum wage legislation provides a floor on the hourly wage rate that employers are allowed to pay most workers. First enacted as part of the Fair Labor Standards Act of 1938, this statute now requires a wage of at least $3.35 per hour for the almost 90 percent of nonsupervisory civilian workers to whom the act applies. Although the minimum wage has been increased numerous times since it was established, it has remained unchanged since January 1981. Because prices and wages have risen since that time, the real value of the minimum wage has fallen.
In recent years, several proposals have been made to change the minimum wage, including increasing it for all workers, reducing it for younger workers just getting started in the labor market, and eliminating it. These alternatives are based on differing views about the effects of the minimum wage at its current level. Some people believe it is too low to provide low-wage workers with an adequate standard of living, while others maintain that the present minimum limits employment opportunities—especially for young workers—by artificially raising wage costs to employers.1
One issue relevant to debates on the minimum wage is the relation between that wage and poverty. Proponents of increasing the minimum wage argue that it should be at least high enough to provide above-poverty earnings to workers with families to support. This article investigates empirical evidence about the relationship among low wage rates, income levels, and the incidence of poverty using data from the March 1985 Current Population Survey (CPS). Unlike wage surveys based on payroll and other business records of employers, this household survey also provides information on the demographic and social characteristics of the workers, as well as their income and poverty status in the preceding calendar year.2
This excerpt is from an article published in the June 1987 issue of the Monthly Labor Review. The full text of the article is available in Adobe Acrobat's Portable Document Format (PDF). See How to view a PDF file for more information.
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1 Raising the cost to employers of low-wage workers can reduce the number of those workers hired and the number of hours they are employed. For example, studies reviewed by staff of the Minimum Wage Study Commission typically estimated that a 10-percent increase in the minimum wage would result in a reduction in teenage employment of between 1 percent and 3 percent. Raising the minimum wage was estimated to have a smaller effect on adult employment, although this effect is even less certain. See Report of the Minimum Wage Study Commission, vol. 1 (Washington, May 1981), ch. 2; and Charles Brown, Curtis Gilroy, and Andrew Kohen, "The Effect of the Minimum Wage on Employment and Unemployment," Journal of Economic Literature, June 1982, pp. 487-528.
2 For more information, see Earl F. Mellor and Steven E. Haugen, "Hourly paid workers: who they are and what they earn," Monthly Labor Review, February 1986, pp. 20-26. Responses to the questions about hourly wages, combined with the regular information collected monthly about members of households in the CPS sample, provide the basis for tabulations published by the Bureau of Labor Statistics on hourly wage rates of wage and salary workers by selected characteristics. The hourly wage rates reported do not include tips, premium pay for overtime, bonuses, or commissions.
Related Monthly Labor Review articles
Experimental poverty measurement for the 1990s.—Mar. 1998.
What does it mean to be poor in America?—May 1996.
Working and poor in 1990.—Dec. 1992.
Poverty areas and the 'underclass:' untangling the web.—Mar. 1991.
Raising the minimum wage: effects on family poverty.—July 1990.
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