Minimum Wage and Poverty Threshold

Minimum Wage

In the United States, the federal minimum wage is determined by the Fair Labor Standards Act (FLSA). This law also establishes overtime pay requirements and child labor standards.

On May 25, 2007, President Bush signed a bill that increased the federal minimum wage in three steps: to $5.85 per hour effective July 24, 2007; to $6.55 per hour effective July 24, 2008; and to $7.25 per hour effective July 24, 2009. However, states do have the discretion to set a minimum wage that is higher than the federal minimum wage. You can learn more about minimum wage laws in your state by visiting the US Department of Labor website.

Interestingly, there are a number of exemptions to the federal minimum wage requirements. For example:

• Workers under 20 years of age may be paid as little as $4.25 per hour during the first 90 consecutive calendar days of employment.
• Workers with disabilities may be paid less than the federal minimum wage under special certificates issued by the Department of Labor.
• Employers who allow workers to receive tips can claim a “tip credit” against the federal minimum wage.

While people who oppose raising the federal minimum wage often claim most workers who receive this pay rate are teens in search of extra spending money, this is not entirely accurate. According to the Economic Policy Institute:

• Of the workers who would be affected by a minimum wage increase, 79 percent are adults.
• More than one-quarter (26 percent) of the workers thought to benefit from a minimum wage increase are parents of children under age 18.
• Typically, a minimum wage worker brings home 58 percent of his or her family's weekly income.
• Over half (53 percent) of all minimum wage workers are employed full time. Another third (31 percent) generally work between 20 and 34 hours per week.

Poverty Threshold

The poverty threshold, also known as the poverty line or the federal poverty level, is the point at which one is thought to be able to achieve a minimum standard of living.

Although the poverty threshold does not take into account regional differences in the cost of living, the calculations do make allowances for age and family size. Currently, $10,488 is the poverty threshold for one adult under the age of 65. Two adults under the age of 65 living together must earn $13,500 or less to fall under the poverty line. Two adults under the age of 65 living with one minor child must earn $16,227 or less to fall under the poverty line.

Additional information about the poverty threshold can be found on the US Census Bureau website.

While the poverty threshold does provide an insight into the plight of the working poor, the guidelines have one significant flaw. Originally, the standard used to calculate the poverty threshold was based on the cost of a nutritionally-adequate diet. Today, however, housing and healthcare have replaced food as the largest expenses in a family budget.

Minimum Wage and Poverty Threshold Connections

Researchers who study issues related to minimum wage and poverty threshold guidelines have discovered a definite link between poor employment opportunities and economic struggles.

A full-time worker (working 2,080 hours a year) earning $5.85 an hour would earn $12,168 per year. Although this is slightly above the poverty line for one person, it is clearly a wage that is inadequate for someone who must support a family. In addition, it’s important to realize that retail stores, fast food establishments, and other businesses that commonly pay the minimum wage often have erratic scheduling policies. Employees may be simply unable to work 40 hours per week on a regular basis.

While food stamps, free medical clinics, housing assistance programs, and other forms of aid can help low income people make ends meet, workers at minimum wage jobs are often unable to build the savings necessary to protect them from financial disaster. A broken refrigerator, an unexpected car repair bill, or a week of work missed due to a child’s illness can have serious consequences.

Additional Resources

For more information, check out the following links:

• Life at Minimum Wage
• Life at America’s Bottom Wage
• Inside the Lives of People Living on Minimum Wage
• Minimum Wage: A Worker’s View
• How Far Would You Go on Minimum Wage?

The book Nickel and Dimed, by Barbara Ehrenreich, also provides an informative look at minimum wage and poverty threshold connections.