Soon after Sen. John Kerry proposed raising the national minimum wage from $5.15 to $7 by 2007, that proposal received predictable cheers from some quarters and predictable boos from others. Yet both the supporters and critics of a higher minimum wage keep missing one critical point.
Take a careful look at the precise wording of a recent Bureau of Labor Statistics (BLS) report on this topic: "Slightly over half of workers earning $5.15 or less were under age 25, and about one-fourth were age 16-19. ... About 2 percent of workers age 25 and over earned the minimum wage or less."
The key phrase in that report -- strangely ignored by both supporters and critics of a higher minimum wage -- is "or less." Among 73 million workers still paid by the hour in 2003 (40 percent of us are salaried), only 545,000 or 0.7 percent earned the minimum wage. Three times as many -- 1.6 million or 2.2 percent -- earned less than the minimum wage. That is a huge improvement over 1997, when 3 million earned less than the minimum wage. Contrary to a universal confusion between words and reality, those paid the official "minimum" wage are not the nation's lowest-paid workers.
The federal minimum wage does not apply to those working on small farms or at seasonal amusement or recreational establishments. It does not apply to newspaper delivery people, companions for the elderly, outside salesmen, U.S. seamen on foreign-flag ships, switchboard operators or part-time babysitters.
Any employer with an annual income below half a million dollars is free to ignore the minimum wage, except in states with their own minimum for such small establishments (such as $2 an hour in Oklahoma, $2.80-$3.35 in Ohio and $4 in Montana). Such jobs offer a crude safety valve, preventing the full brunt of minimum wage hikes from taking the form of higher unemployment.
Not all the unskilled job applicants precluded from minimum wage jobs end up being added to the ranks of the unemployed, or (another neglected effect) to the ranks of discouraged labor force dropouts. Instead, many are just displaced into jobs exempt from the federal minimum wage.
Jobs paying less than the minimum wage, legally or otherwise, are typically more arduous and less secure than jobs in, say, chain stores or restaurants, where the minimum wage is more easily enforced. Jobs exempt from the minimum wage generally offer no pension or health benefits,and no effective regulation of overtime hours, sick pay or other working conditions. Employer payment of Social Security taxes is notoriously negligent, leaving affected workers ineligible for benefits.