The Economics of Minimum Wage

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The Economics of Minimum Wage One might ask, what is minimum wage? Minimum wage is the lowest hourly amount an employer can pay an employee. There may be some exceptions based on the type of worker. There are two kinds of minimum wage rates, state and federal. Right now, the current minimum wage is $7.25 per hour. In some states, minimum wages are higher than the federal rate. Workers are paid the higher amount in those locations. Minimum wage has been a hot subject among the policy makers and economists. It has also been a hard and tight issue for the economists. This goes back as far as the 1938 Fair Labor Standards Act. Minimum wage was a politically debatable issue. In 1933, President Franklin Roosevelt attempted to legislate a federal minimum wage, but it was taken down. Eventually, President Roosevelt won and Congress passed the FLSA. At that time minimum wage was set at 25 cents per hour. Since the passing of the Fair Labor Standards Act, the United States has required that all firms that do at least $500,000 worth of business per year pay their co-workers a minimum wage. Minimum wage plays a big part in the cost of labor and how firms deal with these costs. A change in the minimum wage that would affect only workers it seems can be felt all the way down to the consumer, who might end up paying for it in the end, unless the firm finds another way to pay for the mandatory raise for all its workers. This means, a decrease in the workforce or a change in the production process. Without really noticing or paying attention to it, the consumer might not feel it. A change in the minimum wage has short term and long-term effects on the economy. Either it can be beneficial or it can be devastating to society. When minimum wage is increased, it puts money in the pockets of low wageworkers that have no other choice but to spend that money in their local communities.
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