$7.25 for Your Thoughts: What You Should Know About Minimum Wage

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Obama Minimum Wage
Jacquelyn Martin/AP
Last month, President Barack Obama included in his State of the Union address a plea to Congress to raise the hourly minimum wage to $10.10. Some people support the idea. Others oppose it.

Chances are, though, that a sizable percentage of the people on both sides of the issue don't know everything there is to know about the law they're supporting or opposing. Here are a few things you may not know about America's minimum wage.

A Quarter, Starting in 1938

America's minimum wage was first passed as part of the Fair Labor Standards Act of 1938, a Rooseveltian piece of legislation intended to help lift America out of the Great Depression. Congress set the hourly minimum wage at 25 cents.

An Earlier Precedent

The FLSA was Congress's second attempt to guarantee a minimum wage. The first, in 1933, came when Congress passed the 25-cent minimum wage as part of the National Industrial Recovery Act of 1933. That law, however, was overturned by the Supreme Court as unconstitutional in 1935. It took three more years to get a law that passed constitutional muster.

Not Everyone Was Covered

The 1938 act applied only to "industries whose combined employment represented only about one-fifth of the labor force," according to the U.S. Department of Labor. At the time, that meant only to workers in industries that engaged directly in interstate commerce or produced goods sold between states. This isn't the way the minimum wage works today, because the FLSA has been modified by several minor and two major sets of amendments.

Major Expansions of Coverage in the '60s

In 1961, the law was amended to extend the minimum wage (then $1 an hour) to other types of employers associated with interstate commerce. %VIRTUAL-article-sponsoredlinks%Two examples: large retailers and small gas stations. The former, it was thought, had an outsize impact on interstate commerce, while the latter was directly related to the process of moving goods between states.

Amendments in 1966 expanded the $1 guarantee even more, covering employees of hospitals, schools, hotels, motels, restaurants, farms, laundries and dry cleaners. Since then, the law has continued to expand.

The Law Still Doesn't Cover Everyone

Broad as its application now is, the most recent iteration of the law, increasing the minimum wage to $7.25 in 2009, still doesn't apply to everyone. According to data from the Bureau of Labor Statistics, about 2 million American workers currently -- and legally -- are paid less than the minimum wage. Employees exempt from the FLSA rules include workers who earn much of their income from tips, such as waitstaff, who can be paid $2.13 an hour plus tips. Also exempt are many domestic workers, farm laborers and disabled workers.

Only 1 Worker in 100 Actually Earns It

Out of a working population of 155 million, 2 million people earning less than minimum wage doesn't sound like a lot. But the number of people actually receiving the minimum wage is even smaller. According to the BLS, only about 1.5 million employees work for minimum wage in the U.S., or about 1 worker out of 100.

And Most of Them Are Young

The majority of these minimum wage workers (55 percent) are younger than 25, and the single-largest age group earning minimum wage is 16 to 19 -- 31 percent. These workers occupy the kinds of entry-level jobs that have historically been a young person's entryway into the working world: 51.6 percent of all minimum wage workers work in either "food preparation and serving related occupations" (as BLS defines them) or else in retail sales "and related occupations."

The Big Reveal

Despite what you may have heard, the minimum wage has been a pretty astounding success at its primary mission of lifting people out of poverty.

According to Pew Research, today's minimum wage of $7.25 an hour would translate into a little more than $15,000 a year for a full-time worker -- or nearly $3,000 more than the federally defined poverty threshold for a single worker under age 65.

It's not enough to keep a single parent and their child out of poverty, granted. But if Congress grants Obama's wish and raises the minimum wage to $10.10 an hour -- about $20,000 a year -- this would suffice to accomplish that. In fact, at $10.10 an hour, one parent working full-time and at minimum wage would earn enough to support a family of three -- whether it's one adult and two children or two adults and one child -- all on a single salary.

Motley Fool contributor Rich Smith has no ownership interest in any company mentioned. He started out working for minimum wage (actually, he started out working for far less than minimum wage and younger than legally permitted) back when "minimum wage" meant $3.35 an hour.


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