A report recently published by the National Employment Law Project (NELP) revealed a growing disparity of jobs available in the wake of the 2008 financial crisis. While the unemployment rate has decreased since its 2009 highs, indicating a modicum of recovery, the study shows that many displaced workers have flocked to lower-paying jobs and are accepting positions that pay minimum wage. Currently, the federal standard sits at $7.25. With the implementation of the Fair Minimum Wage Act of 2012, minimum wage will increase to $9.80 over the next three years. Is the current minimum wage a fair amount for the labor involved? Based on the recent data, is minimum wage a matter worth revisiting and revising?

What the Data Says
According to the analysis by the NELP, 1.7 million minimum wage jobs were added in lieu of the positions lost during the economic downturn. Most of the new jobs were added in the food services, retail and employment service industries. The analysis conducted by the group split occupations into three groups: lower-wage, mid-wage and higher-wage. During the recession, the most jobs lost fell in the mid-wage category, with 60% of the job losses coming from mid-wage positions. Lower-wage positions made up 21% of the recession losses, and higher-wage positions made up 19%.

To date, the recovery has not seen the reversal of these losses, but rather a shift towards lower-wage jobs, with 58% of recovery growth attributed to lower-wage occupations. Mid-wage and higher-wage occupations made up 22% and 20% of the recovery growth, respectively. In addition, this disparity may not be unabated for the foreseeable future. According to a projection of future job growth by the Bureau of Labor Statistics, six of the top 10 occupations predicted to increase by 2020 fall under the category of low-wage.

Is the Current Federal Minimum Wage Fair?
With more and more workers accepting jobs below their former pay scales, the question of whether the minimum wage should increase has been a subject of discussion in the upcoming election. Many economists oppose minimum wage altogether, arguing that the created price floor would pose as a barrier for those deemed underqualified to warrant earning a minimum wage. Moreover, an increase in minimum wage would supposedly harm business owners who, due to decreased demand, are unable to afford an imposed pay increase and see thinner margins on their income sheets.

Modern day minimum wage earners have less buying power than minimum wage earners in 1968, and they are increasingly losing more buying power while the current minimum wage fails to keep pace with inflation.

According to an article published by Bloomberg late last year, the current minimum wage of $7.25, while nominally higher than what it was in 1967 ($1.40), indicates a 20% decrease from 1967 to 2010 after adjusting for inflation. Factor in the migration of skilled labor from mid-wage occupations to lower-paying ones, and many skilled workers are unable to find decent and relevant work. Once they do find jobs, they are being paid significantly less than their 1967 counterparts in terms of real dollars. Without a change to the minimum wage, these workers will continue to be paid less than their 1967 counterparts for at least the next eight years.

The Bottom Line
The legislation for the increase of wage is complex and often politically motivated. It has been five years since there was a federal amendment to the minimum wage. In that time, the economy saw this generation's largest financial crisis. Now it is likely that the average minimum wage worker will have completed his or her post-secondary education. The need for discussion regarding the quality of employment out in the market, along with the appropriate payment schedule, is more pertinent than it has ever been.

Related Articles
  1. Personal Finance

    How To Get That Entry-Level Financial Analyst Job

    Landing a job as a financial analyst takes study, strategy and a lot of hard work. Here's how to hone your competitive edge.
  2. Investing

    What’s Holding Back the U.S. Consumer

    Even as job growth has surged and gasoline prices have plunged, U.S. consumers are proving slow to respond and repair their overextended balance sheets.
  3. Economics

    Understanding Organic Growth

    Organic growth is the increase in a company’s revenue and value due to internal operations.
  4. Economics

    Explaining Market Penetration

    Market penetration is the measure of how much a good or service is being used within a total potential market.
  5. Economics

    Calculating the Marginal Rate of Substitution

    The marginal rate of substitution determines how much of one good a consumer will give up to obtain extra units of another good.
  6. Economics

    Understanding Cost of Revenue

    The cost of revenue is the total costs a business incurs to manufacture and deliver a product or service.
  7. Stock Analysis

    5 Reasons Thoratec Corp. Keeps Impressing Investors

    Learn about Thoratec Corporation and its position in its industry. Understand five key factors why the company has impressed investors.
  8. Entrepreneurship

    Startup Analysis: How Much Is Palantir Worth?

    Learn about the private company Palantir, its valuation and how its valuation was derived. Understand how the company operates and if it deserves the valuation.
  9. Stock Analysis

    Jawbone: An IPO You Should Have on Your Radar

    Learn about the company Jawbone and how it has become successful with multiple product lines. Understand the benefits of investing in an IPO
  10. Savings

    All About Income

    Income is the money you or a business earns by providing goods or services, or through investments.
RELATED TERMS
  1. Supply

    A fundamental economic concept that describes the total amount ...
  2. Black Money

    Money earned through any illegal activity controlled by country ...
  3. Indemnity

    Indemnity is compensation for damages or loss. Indemnity in the ...
  4. Horizontal Merger

    A merger occurring between companies in the same industry. Horizontal ...
  5. Factor Market

    A marketplace for the services of a factor of production.
  6. Exempt Employee

    The term “Exempt Employee” refers to a category of employees ...
RELATED FAQS
  1. What is the utility function and how is it calculated?

    In economics, utility function is an important concept that measures preferences over a set of goods and services. Utility ... Read Full Answer >>
  2. What does marginal utility tell us about consumer choice?

    In microeconomics, utility represents a way to relate the amount of goods consumed to the amount of happiness or satisfaction ... Read Full Answer >>
  3. What is the difference between JIT (just in time) and CMI (customer managed inventory)?

    Just-in-time (JIT) inventory management focuses solely on the need to replenish inventory only when it is required, reducing ... Read Full Answer >>
  4. What are some examples of Apple and Google's best-selling product lines?

    There are many good examples of product lines in the technology sector from some of the largest companies in the world, such ... Read Full Answer >>
  5. What is a negative write-off?

    A negative write-off is a write-off conducted by a company or accountant after deciding not to pay back an individual or ... Read Full Answer >>
  6. How can tariffs cause inefficiencies in domestic industries?

    Any government regulation naturally creates inefficiencies in a pure supply and demand marketplace. When it comes to the ... Read Full Answer >>

You May Also Like

Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!