6.5 Wage Differences and the Minimum Wage

Notes

• Wages differ because of skill and education, experience, location, working conditions and the supply and demand for each job.
• Discrimination in pay or hiring is illegal under laws such as the Equal Pay Act (1963), which requires equal pay for men and women doing equal work, and the Civil Rights Act of 1964, which bans job discrimination by race, color, religion, sex or national origin.
• The Fair Labor Standards Act (1938) created the first federal minimum wage (25 cents an hour), limited child labor and required overtime pay (the standard workweek reached 40 hours in 1940). Congress changes the minimum wage by law, and many states set higher ones.
• A minimum wage is a price floor for labor. If it is above the equilibrium wage, models predict that more people will want jobs than employers want to fill.
• Economists debate its effects. Some argue a higher minimum raises the incomes of low-wage workers with little job loss; others argue it reduces jobs or hours for the least experienced workers. Studies reach different results depending on the size of the increase and local conditions.