Changes in Minimum Wage Laws in 2017

Minimum wage is defined under FLSA as the lowest pay per hour that can be awarded to employees, also referred to as a pay floor. The FLSA determines minimum wage for non-exempt employees in public and private sectors at both federal and state levels. Under the provisions of the act, all non-exempt employees must be paid rates equivalent to minimum wage or over. It is important to note that exempt employees who are not subject to minimum wage include those not protected by the FLSA, tipped employees, and other who can be paid at rates lower than the minimum wage. While the federal minimum wage is the least acceptable, variations in states’ rate with that of the federal government and states themselves are significant.

Since 2009, the federal minimum wage has remained at $7.25 per hour, but 2017 ushered in a whole new trend. Wihbey (2016) reported that the frenzy by states in the US to raise minimum wage rates followed the call by former president Obama in their 2013 State of the Union address, to raise the minimum wage to $9.0 per hour. Analysts observed that when adjusted, such an increase will give it the value it held in the 1980s, while a raise to $10.10 per hour is needed for the value it held in 1968. Inflation is cited as the major culprit in the erosion of the value of minimum wage, despite it increasing from 25 cents from 1938 to the current $7.25. However, it is important to understand that at the moment, no official decision exists to increase federal minimum wage in 2017. Nevertheless, the DOL in early 2017 enacted legislation requiring employees with federal contracts to be paid a minimum wage of $10.10 per hour effective from January 1, 2017. In the same vein, tipped employees with connections to federal contracts were to receive cash wages of at least $6.80 per hour (US DOL, 2017). According to Wihbey (2016), administration estimates indicate that over 15 million people, many of them women, are likely to benefit from these changes in the minimum wage laws.

According to Morath (2016), The Wall Street estimates on average 4.3 million people to benefits from state minimum wage increases to take place in over 19 states in the turn of the year. DuVall (2016) reported that the increases took place in 21 states, and was an outcome of legislatures in the respective states drafting laws to increase their states’ minimum wage, despite the federal hourly pay floor remaining unchanged. The National Conference of State Legislatures - NCSL (2017) reported that the increases in the respective states were an automatic response to the cost of living, ballot initiatives approved by the electorate, and legislation passed into law.

Figure 1: Affected states and respective reasons for raising minimum wage (Margolin, 2016)

However, not all states implemented the raise during the turn of the year with some opting for increases throughout the year. There also notable variations in minimum wage from one city or county to another within the states. Table 1 below shows some of the key highlights in relation to minimum wage increases in the 21 states. Majority of the states not listed remain at the federal rate, while other that have their rates higher than the federal minimum, but did not pass the legislation to raise are not included.

Table1 : Changes in minimum wages effected in 21 states in 2017 (Adapted from NCSL, 2017) 

The table above highlights the existence of two types of increases in minimum wage. First, it is notable that not all increases are significant. For instance, four states namely: Alaska, Florida, Missouri, and Ohio, raised their minimum wage by a mere $0.05, while Montana and South Dakota did so by $0.10. The important fact to understand is that the increases are tied to inflation rate, with majority of the states opting to link minimum wage increments to rises in the Consumer Price Index. Other states such as Arizona made massive changes with an increase of $1.95 per hour, and Massachusetts and Washington are also primed with increases of over $1.0 per hour. Regardless of the increase, employers with large bases of low-wage earners are likely to fill the pinch more (Margolin, 2017; Schmitt, 2013). According to NCSL (2017), the changes in minimum wage laws 2017 is a progressive process and many states are still implementing current increment requirements, which are scheduled to rise in the future.

Reactions to the Changes in the Laws 

There have been mixed reactions towards the changes in minimum wage laws in 2017, but it is only time that will tell if advocates and opposition of such changes had a basis for their concerns. In the meantime, Morath (2016) observed that the increases represent a shift that will not only raise pay for millions of people, but also give insights into the never-ending debate of whether minimum wage does more harm or good for low-wage earners. More interest is generated by the fact that changes in the laws were significant in Republican controlled states, even though they have long held skepticism towards mandated wage increases. It is difficult to tell whether these changes are a political strategy, especially following the election of a republic president into the Whitehouse. According to Margolin (2017), the current to be confirmed labor secretary vehemently opposed Obama’s administration to raise minimum wage, which casts speculation into the motive of the increments, especially relating to employability.

According to Schmitt (2013), the increases, even those amounting to a few cents, are likely to be a source of concern for employers with large shares low-wage earners. Wihbey (2016) reported that there is a consensus among critics in regards to effects of minimum wage increases being negative arguing that: it hurts businesses, raises prices, and is counterproductive for the low-wage earners due to prospects of job loss. Earlier studies have shown that employers resort to cutting down jobs to pay employees more, and increases in minimum wage points to that direction. The findings corroborate Schmitt (2013) argument that measured employment effects from minimum wages are consistently small, hence the need to adopt alternative channels for adjustment of the differences namely: reductions in labor turnover; reductions in wages of higher earners (wage compression); improvements in organizational efficiency; and small price increases. However, one can argue that the complexity of implementing such adjustments across the labor industry leads to preference for a law that cuts across the board, hence minimum wage triumphs.

Conclusion 

Since establishment in 1938, the FLSA on minimum wage has been amended 22 times, increasing minimum wage from 25 cents to $7.25, this is the federal minimum that remains unchanged, despite evident increases in some states effective early 2017. It is important to note that the changes in minimum wage laws of 2017 in themselves are of no concern as little opposition has been raised in relation to how much should be paid per hour. Contrastingly, the debate surrounds the overall effects of such increases the economy including performance of businesses that may be forced to raise prices to compensate for the extra pay to employees, and the prospect of some low-wage earners being laid off their jobs. There are no clear explanations of how such concerns will be addresses in the laws. However, it is paramount that employees have something substantial to take home at the end of the day, and together with the growing inflation that has sky-rocketed the cost of living; one can argue that such increases in minimum way could not have come at a better time.

References

Basu, A. K., Chau, N. H., & Kanbur, R. (2010). Turning a blind eye: Costly enforcement, credible commitment and minimum wage laws.  The Economic Journal ,  120 (543), 244-269.

David, H., Manning, A., & Smith, C. L. (2016). The contribution of the minimum wage to US wage inequality over three decades: a reassessment. American Economic Journal: Applied Economics, 8(1), 58-99.

DuVall, E. (2016, December). 2017 brings minimum wage increases in 21 states. United Press International. Retrieved 19/02/2017 from: http://www.upi.com/Business_News/2016/12/31/2017-brings-minimum-wage-increases-in-21-states/2571483223259/.

Margolin, E. (2017, January). Minimum wages will rise in nearly two dozen states in 2017. NBC News. Retrieved 19/02/2017 from: http://www.nbcnews.com/news/us-news/minimum-wages-will-rise-nearly-two-dozen-states-2017-n700831.

Morath, E. (2016, December). Minimum wages set to increase in many states in 2017. The Wall Street Journal. Retrieved 19/02/2017 from: https://www.wsj.com/articles/minimum-wages-set-to-increase-in-many-states-in-2017-1483093806.

National Conference of State Legislatures. (2017, January). State minimum wages: 2017 minimum wage by state. Retrieved 19/02/2017 from: http://www.ncsl.org/research/labor-and-employment/state-minimum-wage-chart.aspx.

Schmitt, J. (2013). Why does the minimum wage have no discernible effect on employment.  Center for Economic and Policy Research ,  22 , 1-28.

Western, B., & Rosenfeld, J. (2011). Unions, norms, and the rise in US wage inequality.  American Sociological Review ,  76 (4), 513-537.

Wihbey, J. (2016, July). Minimum wage: Updated research roundup on the effects of increasing pay. Journalist’s Resource. Retrieved 19/02/2017 from: https://journalistsresource.org/studies/economics/inequality/the-effects-of-raising-the-minimum-wage.