Minimum Wage

The lowest hourly rate an employer can legally pay a worker, set by federal, state, or local law — whichever is highest applies.

Minimum wage is the legal floor on compensation — the lowest amount an employer can pay per hour worked. The federal minimum wage is set by the FLSA and has been $7.25/hour since 2009. However, most workers are covered by their state or local minimum wage, which is often significantly higher. When federal, state, and local minimums differ, employees are entitled to whichever is highest. As of 2024, many states have minimums of $15–$17/hour, and cities like Seattle, San Francisco, and New York City are higher still.

Minimum wage applies to most non-exempt employees. Tipped workers have a separate federal minimum ($2.13/hour for the tipped minimum, as long as tips bring total compensation to at least $7.25), though many states require full minimum wage before tips. Some categories of workers — farm workers, certain small business employees, young workers in training — have historically had different minimums, though many states have eliminated these carve-outs.

The federal minimum's failure to adjust for inflation is dramatic in historical terms. In 1968, the federal minimum wage was $1.60/hour — equivalent to approximately $13–$14 in 2024 dollars. The $7.25 federal minimum set in 2009 represents a significant real-wage decline from the historical peak. This is why state and local action has accelerated: in the absence of federal movement, cities and states have become the operative minimum wage setters for the majority of American workers.

The policy debate about minimum wage increases centers on employment effects. Economic research has historically predicted job losses from higher minimums — the logic being that higher labor costs lead employers to hire fewer workers or automate. More recent empirical research, including large natural experiments from state-level increases, has found smaller employment effects than predicted, particularly in local labor markets where workers have limited alternatives. The debate continues, but the evidence now gives more support to meaningful minimum wage increases than the traditional model suggested.

Why the Federal Minimum Lags

  • Congress must pass legislation to increase the federal minimum — unlike many other labor standards, it doesn't auto-adjust for inflation.
  • The $7.25 federal minimum has been unchanged since 2009 — its real purchasing power has declined approximately 20% since then.
  • 30+ states and hundreds of cities have enacted minimums above the federal rate, making the federal floor largely academic for most workers.
  • Efforts to raise the federal minimum to $15 have passed the House but stalled in the Senate multiple times since 2019.
  • Indexing the minimum to inflation — as Social Security is — would eliminate the need for repeated legislative action, a proposal with bipartisan support at the state level.

Who Minimum Wage Affects — and Who It Doesn't

  • Approximately 1–2% of American workers earn exactly the federal minimum; far more earn just above various state or local minimums.
  • Independent contractors are not covered by minimum wage laws — a significant gap given the growth of gig work.
  • Salaried exempt employees have no minimum hourly floor — only the FLSA weekly salary threshold for exempt classification.
  • Tipped employees are subject to a separate minimum in states that allow the tip credit — as low as $2.13/hour federally.
  • Youth minimum wage: federally, employers can pay workers under 20 as little as $4.25/hour for the first 90 days — most states have eliminated this provision.

Example

A barista in California earns $16/hour — California's state minimum. The federal minimum of $7.25 is irrelevant because the state minimum is higher. If her city has a local minimum of $17.50, she's entitled to $17.50. Her employer posts the applicable wage notice (legally required) and updates her pay when the city minimum increases in January.