How is the Minimum Wage Determined?
Ever since its inception in the 1930s, the federal minimum wage has been a lightning rod for controversy and seemingly endless debate amongst lawmakers. Historically, the Democratic party has generally been the one to propose adjustments to the current minimum wage, which would largely benefit workers, while the Republican party has sought to put caps on the amount of the raise, which largely benefits employers. Depending on which political party is in control of Congress, the minimum wage may not be adjusted for years, or it might be adjusted any number of times in a decade.
Determining the actual minimum wage was originally supposed to be the job of an oversight committee. This board composed of lawmakers, economists and business leaders would consider the current social and economic climate to determine if an adjustment to the federal minimum wage was necessary. Such factors as the unemployment rate, inflation rate, and average family incomes would theoretically determine the lowest living wage and the federal minimum wage would be adjusted accordingly. This is how it was supposed to work on paper, anyway.
In reality, there has never really been an established formula for determining the federal minimum wage. Some sources believe that the minimum wage is calculated as a certain percentage of the current poverty line for a family of four, but in recent years that has not proven to be the case. Currently, the federal minimum wage is not indexed to the rate of inflation, either. There have been efforts to tie the minimum wage with the annual inflation rate, but those proposals have not been adopted as of this writing. In fact, the most recent raise in the federal minimum wage, adopted by Congress in 2007, does not even match the actual spending power of the 1979 minimum wage adjustment.
Realistically, the amount of the minimum wage is largely determined by the sponsor of the bill designed to adjust it. A proponent of raising the federal minimum wage, such as Massachusetts's Senator Ted Kennedy, might routinely introduce bills in the Senate to that effect. Many of those bills may die in committee, or not receive enough support from the opposite political party. Once in a while, however, a bill to increase the federal minimum wage does survive the initial process and a committee is formed to study the proposal.
It is during this review process that a final minimum wage level may be determined. Opponents and lobbyists often present their objections to raising the minimum wage, citing increases in labor costs, possible lay-offs and a general raise for workers currently working just above the current minimum wage. Proponents may argue that the wage should be adjusted to keep pace with the actual cost of living, or to encourage the poor to choose work over public assistance programs. By the end of these discussions, a new federal minimum wage usually emerges. As a concession to employers, however, the new wage is generally phased in over a number of years.
Perhaps one day the federal minimum wage will be indexed to a standard economic indicator such as inflation or the annual poverty line, but until then any raise will most likely be tied to the political climate in place at the time.
Written by Michael Pollick
