The Federal Minimum Wage: In Brief

May 30, 2013 – February 4, 2021 R43089

The Federal Minimum Wage: In Brief
Updated February 4, 2021
Congressional Research Service
https://crsreports.congress.gov
R43089

The Federal Minimum Wage: In Brief

Summary
The Fair Labor Standards Act (FLSA), enacted in 1938, is the federal law that establishes the
minimum hourly wage that must be paid to all covered workers. The minimum wage provisions
of the FLSA have been amended numerous times since 1938, typically for the purpose of
expanding coverage or raising the wage rate. Since its establishment, the minimum wage rate has
been raised 22 separate times. The most recent change was enacted in 2007 (P.L. 110-28), which
increased the minimum wage to its current level of $7.25 per hour.
In addition to setting the federal minimum wage rate, the FLSA provides for several exemptions
and subminimum wage categories for certain classes of workers and types of work. Even with
these exemptions, the FLSA minimum wage provisions still cover the vast majority of the
workforce. Despite this broad coverage, however, the minimum wage directly affects a relatively
small portion of the workforce. Currently, there are approximately 1.6 million workers, or 1.9%
of all hourly paid workers, whose wages are at or below the federal minimum wage of $7.25 per
hour. Most minimum wage workers are female, are age 20 or older, work part time, and are in
food service occupations.
Proponents of increasing the federal minimum wage argue that it may increase earnings for lower
income workers, lead to reduced turnover, and increase aggregate demand by providing greater
purchasing power for workers receiving a pay increase. Opponents of increasing the federal
minimum wage argue that it may result in reduced employment or reduced hours, lead to a
general price increase, and reduce profits of firms paying a higher minimum wage.
Congressional Research Service

The Federal Minimum Wage: In Brief

The Federal Minimum Wage
The Fair Labor Standards Act (FLSA), enacted in 1938, is the federal legislation that establishes
the general minimum wage that must be paid to all covered workers.1 A full discussion of the
coverage of the minimum wage is beyond the scope of this report, which provides only a broad
overview of the topic. In general, the FLSA mandates broad general minimum wage coverage. It
also specifies certain categories of workers who are not covered by FLSA wage standards, such as
workers with disabilities or certain youth workers. The act was enacted because its provisions
were meant to both protect workers and stimulate the economy. The FLSA also created the Wage
and Hour Division (WHD), within the Department of Labor (DOL), to administer and enforce
the act.
In 1938, the FLSA established a minimum wage of $0.25 per hour. The minimum wage
provisions of the FLSA have been amended numerous times since then, typically for the purpose
of expanding coverage or raising the wage rate. Since its establishment, the minimum wage rate
has been raised 22 separate times. The most recent change was enacted in 2007 (P.L. 110-28),
which increased the minimum wage from $5.15 per hour to its current rate of $7.25 per hour in
three steps. For employees working in states with a minimum wage different from that of the
federal minimum wage, the employee is entitled to the higher wage of the two.
FLSA Minimum Wage Coverage
The FLSA extends minimum wage coverage to individuals under two types of coverage—
“enterprise coverage” and “individual coverage.”2 An individual is covered if they meet the
criteria for either category. Around 139 million workers, or 85% of all wage and salary workers,
are covered by the FLSA.3
Enterprise Coverage
The first category of coverage is at the business or enterprise level. To be covered, an enterprise
must have at least two employees and must have annual sales or “business done” of at least
$500,000. Annual sales or business done includes all business activities that can be measured in
dollars. Thus, for example, retailers are covered by the FLSA if their annual sales are at least
$500,000.4 In non-sales cases, such as enterprises engaged in leasing property, gross amounts paid
by tenants for property rental will be considered “business done” for purposes of determining
enterprise coverage.
In addition, regardless of the dollar volume of business, the FLSA applies to hospitals or other
institutions primarily providing medical or nursing care for residents; schools (preschool through
institutions of higher education); and federal, state, and local governments.

1 In addition, the FLSA provides for overtime pay and child labor protections. The scope of this report is only on the
minimum wage provisions. For a broader overview of the FLSA, see CRS Report R42713, The Fair Labor Standards
Act (FLSA): An Overview, by David H. Bradley, Benjamin Collins, and Sarah A. Donovan.
2 29 U.S.C. §206(a).
3 U.S. Department of Labor, Wage and Hour Division, “Defining and Delimiting the Exemptions for Executive,
Administrative, Professional, Outside Sales and Computer Employees,” 84 Federal Register 51256, September 27,
2019. Because some individuals are exempt from the minimum wage provisions of the FLSA, the number of workers
covered by the minimum wage provisions is presumably lower.
4 The $500,000 threshold refers to the annual gross volume of sales. It is not a measure of net revenue or profits.
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The Federal Minimum Wage: In Brief

Individual Coverage
The second category of coverage is at the individual level. Although an enterprise may not be
subject to minimum wage requirements if it has less than $500,000 in annual sales or business
done, employees of the enterprise may be covered if they are individually engaged in interstate
commerce or in the production of goods for interstate commerce. The definition of interstate
commerce is fairly broad. To be engaged in “interstate commerce,” employees must produce
goods (or have indirect input to the production of those goods) that will be shipped out of the
state of production, travel to other states for work, make phone calls or send emails to persons in
other states, handle records that are involved in interstate transactions, or provide services to
buildings (e.g., janitorial work) in which goods are produced for shipment outside of the state.5
Exemptions and Subminimum Wages
The FLSA covers most, but not all, private and public sector employees.6 Certain employers and
employees are exempt from all or parts of the FLSA minimum wage provisions, either through
the individual or enterprise coverage or through specific exemptions included in the act. In
addition, the FLSA provides for the payment of subminimum wages (i.e., less than the statutory
rate of $7.25 per hour) for certain classes of workers.
Excluded from FLSA Minimum Wage Coverage
The FLSA statutorily exempts various workers from FLSA minimum wage coverage. Some of the
exemptions are for a class of workers (e.g., executive, administrative, and professional
employees), while others are more narrowly targeted to workers performing specific tasks (e.g.,
workers employed on a casual basis to provide babysitting services).
The list below is not exhaustive but is intended to provide examples of workers who are not
covered by the minimum wage requirements of the FLSA:7
 bona fide executive, administrative, and professional employees;8
 individuals employed by certain establishments operating only part of the year
(e.g., seasonal amusement parks, organized summer camps);
 individuals who are elected to state or local government offices and members of
their staffs, policymaking appointees of elected officeholders of state or local
governments, and employees of legislative bodies of state or local governments;

5 U.S. Department of Labor, Coverage Under the Fair Labor Standards Act, available at http://www.dol.gov/whd/regs/
compliance/whdfs14.pdf. (Hereinafter cited as DOL, Coverage Under the Fair Labor Standards Act.) These examples
are not exhaustive but are meant to illustrate the relatively broad range of activities comprising “interstate commerce.”
6 According to the WHD in 2019, about 139.4 million workers are covered by the FLSA. Out of a total civilian labor
force of about 164.5 million, this implies that about 84.7% of the workforce is covered. Major groups of workers
excluded from the FLSA’s coverage include self-employed workers, military personnel, and clergy and religious
workers. U.S. Department of Labor, Wage and Hour Division, “Defining and Delimiting the Exemptions for Executive,
Administrative, Professional, Outside Sales and Computer Employees,” 84 Federal Register 51256, September 27,
2019.
7 Most exemptions for individuals are in 29 U.S.C. §203(e), 29 U.S.C. §213(a), and 29 U.S.C. §213(d). The list here
should not be considered exhaustive as there are various job duties, earnings, and employer characteristic requirements
that further define the general exemptions listed here.
8 The term “bona fide” indicates that job titles alone do not determine exempt status. Rather, employees falling under
this exemption must meet criteria related to job duties and pay. See CRS Report R45722, Overtime Exemptions in the
Fair Labor Standards Act for White-Collar Employees: Frequently Asked Questions, by David H. Bradley.
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The Federal Minimum Wage: In Brief

 employees who are immediate family members of an employer engaged in
agriculture;
 individuals who volunteer their services to a private, nonprofit food bank and
who receive groceries from the food bank;
 agricultural workers meeting certain hours and job duties requirements;
 individuals employed in the publication of small circulation newspapers;
 domestic service workers employed on a casual basis to provide babysitting;
 individuals employed to deliver newspapers; and
 certain employees in computer-related occupations.
Subminimum Wages
The FLSA also allows the payment of subminimum wages for certain classes of workers,
including the following:
 Youth.9 Employers may pay a minimum wage of $4.25 per hour to individuals
under the age of 20 for the first 90 days of employment.
 Learners.10 Employers may apply for special certificates from the Wage and
Hour Division of DOL that allow them to pay students who are receiving
instruction in an accredited school and are employed part-time as part of a
vocational training program a wage at least 75% of the federal minimum wage
($5.44 at the current minimum wage).
 Full-Time Students.11 Employers may apply for special certificates from the
Wage and Hour Division of DOL that allow them to pay full-time students who
are employed in retail or service establishments, an agricultural occupation, or an
institution of higher education a wage at least 85% of the federal minimum wage
($6.16 at the current minimum wage).
 Individuals with Disabilities.12 Employers may apply for special certificates
from the Wage and Hour Division of DOL that allow them to pay wages lower
than the otherwise applicable federal minimum to persons “whose earning or
productive capacity is impaired” by a physical or mental disability. As elaborated
in regulations, disabilities that may affect productive capacity include, but are not
limited to, blindness, mental illness, developmental disabilities, cerebral palsy,
alcoholism, and drug addiction.13 There is no statutory minimum wage required
under this provision of the FLSA, but pay is to be broadly commensurate with
pay to comparable non-disabled workers and related to the individual’s
productivity.14

9 29 U.S.C. §206(g).
10 29 U.S.C. §214(a).
11 29 U.S.C. §214(b).
12 29 U.S.C. §214(c).
13 29 C.F.R. §525.3.
14 For details on the process for determining wages under Section 14(c), see U.S. Department of Labor, Wage and Hour
Division, Prevailing Wages and Commensurate Wages under Section 14(c) of the Fair Labor Standards Act (FLSA),
Fact Sheet #39B, Washington, DC, May 2009, http://www.dol.gov/whd/regs/compliance/whdfs39b.pdf.
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 Tipped Workers.15 Under Section 203(m) of the FLSA, a “tipped employee”—a
worker who “customarily and regularly receives more than $30 a month in
tips”—may have his or her cash wage from an employer reduced to $2.13 per
hour, as long as the combination of tips and cash wage from the employer equals
the federal minimum wage. An employer may count against his or her liability
for the required payment of the full federal minimum wage the amount an
employee earns in tips. The value of tips that an employer may count against
their payment of the full minimum wage is known as the “tip credit.” Under the
current federal minimum wage and the current required minimum employer cash
wage, the maximum tip credit is $5.12 per hour (i.e., $7.25 minus $2.13). Thus,
all workers covered under the tip credit provision of the FLSA are guaranteed the
federal minimum wage.
Characteristics of Minimum Wage Workers
The most recent data available (2019) indicate that there are approximately 1.6 million workers,
or 1.9% of all hourly paid workers, whose wages are at or below the federal minimum wage of
$7.25 per hour. Of these 1.6 million workers, approximately 400,000 earn the federal minimum
wage of $7.25 per hour, and the other 1.2 million earn below the federal minimum wage. As the
Bureau of Labor Statistics (BLS) notes, the large number of individuals earning less than the
statutory minimum wage does not necessarily indicate violations of the FLSA but may reflect
exemptions or misreporting.16
The “typical” minimum wage earner tends to be female, age 20 or older, part-time, and working
in a food service occupation. The data in Table 1 below show selected characteristics of the
workers earning at or below the federal minimum wage. The data are based on the universe of the
estimated 1.6 million workers who earned $7.25 per hour or less in 2019.
Table 1. Selected Characteristics of Workers Earning at or Below the Federal
Minimum Wage in 2019
Characteristic
Number (’000s)
Percentage
Age

16-19
272
17.0%
20-24
419
26.1%
25-29
256
16.0%
30 and older
656
40.9%

15 29 U.S.C. §203(m). For additional information on the tip credit provisions of the minimum wage, see CRS Report
R43445, The Tip Credit Provisions of the Fair Labor Standards Act (FLSA): In Brief, by David H. Bradley.
16 U.S. Bureau of Labor Statistics, Characteristics of Minimum Wage Workers, 2019, Report 1085, Washington, DC,
April 2020, https://www.bls.gov/opub/reports/minimum-wage/2019/pdf/home.pdf. BLS produces an annual report on
minimum wage workers using data from the Current Population Survey (CPS), which is a monthly household survey
used to collect economic and demographic information on the population. The CPS does not ask respondents directly if
they earn the minimum wage. Rather, the estimate of workers at or below the federal minimum wage is derived from
reported earnings on a person’s sole (or principal) job. As BLS notes, because the estimates are based on workers paid
at hourly rates, with salaried and non-hourly workers excluded, “the estimates presented in this report likely
underestimate the actual number of workers with hourly earnings at or below the minimum wage.”
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Characteristic
Number (’000s)
Percentage
Sex

Men
536
33.4%
Women
1,067
66.6%

Work Statusa

Ful -Time
717
44.7%
Part-Time
886
55.3%

Occupations

Service Occupations
1,131
70.6%
Healthcare Support
41
2.6%
Protective Services
29
1.8%
Food Preparation and Serving
887
55.3%
Building and Ground
Maintenance
68
4.2%
Personal Care and Service
106
6.6%

Sales and Office Occupations
209
13.0%
Sales and Related
136
8.5%
Office and Administrative
73
4.6%

All Other Occupationsb
263
16.4%

Educational Attainment

Less than High School Degree
459
21.3%
High School
667
31.0%
Some Col ege
591
27.5%
Associate’s Degree
192
8.9%
Bachelor’s and Higher
245
11.4%
Source: U.S. Bureau of Labor Statistics, Characteristics of Minimum Wage Workers, 2019, Report 1085,
Washington, DC, April 2020, https://www.bls.gov/opub/reports/minimum-wage/2019/pdf/home.pdf.
a. Ful -time is 35 hours or more of work per week, while part-time is less than 35 hours per week.
b. Includes management, professional, natural resources, construction, production, and transportation
occupations.
State Minimum Wages
States may also choose to set labor standards that are different from federal statutes. The FLSA
establishes that if states enact minimum wage, overtime, or child labor laws more protective of
employees than those provided in the FLSA, the state law applies. In the case of minimum wages,
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this means that if an individual is covered by the FLSA in a state with a higher state minimum
wage, the individual is entitled to receive the higher state minimum wage. On the other hand,
some states have set minimum wages lower than the FLSA minimum. In those cases, an FLSA-
covered worker would receive the FLSA minimum wage and not the lower state minimum wage.
As of January 2021, 30 states and the District of Columbia have enacted minimum wage rates
above the federal rate of $7.25 per hour.17 In 2021, these rates range from $8.75 per hour in
Montana and West Virginia to $13.69 in Washington State and $15.00 in Washington, DC. Two
states have minimum wage rates below the federal rate and five have no minimum wage
requirement. The remaining 13 states have minimum wage rates equal to the federal rate.18 In the
states with no minimum wage requirements or wages lower than the federal minimum wage, only
individuals who are not covered by the FLSA are subject to those lower rates.
Since minimum wage data were first collected on a regular basis in 1979, the number and share of
workers earning at or below the federal minimum wage has fallen. For example, in 1979, 6.9
million workers, or 13.4% of all hourly paid workers, earned at or below the federal minimum
wage, compared to 1.6 million (or 1.9% of all hourly paid workers) in 2019.19 As more states
enact minimum wage rates above the federal rate, the share of the labor force for which the
federal rate is the floor has fallen. While the federal minimum wage set the wage floor for nearly
all of the labor force in 1979, when only two states had general minimum wage rates above the
federal rate of $2.90, the federal minimum wage is now the wage floor for only about 39% of the
labor force.20 Thus, the data in Table 1 reflect only workers earning at or below the federal
minimum wage, not all workers earning at or below a state or local minimum wage above the
federal rate.
Arguments For and Against Raising the
Minimum Wage
The literature on the effects of the minimum wage is vast and represents one of the more well-
studied issues in labor economics. As such, this topic has resulted in hundreds of academic and
non-academic publications. It is beyond the scope of this section to summarize or synthesize this
literature. Broadly speaking, there is not universal consensus on the causal relationship between
changes in minimum wage and other economic outcomes.21 This section presents a brief

17 This count includes all states with enacted rates that become effective at some point in 2021. For example, the rate in
Virginia is scheduled to remain at $7.25 per hour through April 2021 and to increase to $9.50 on May 1, 2021.
18 CRS Report R43792, State Minimum Wages: An Overview, by David H. Bradley.
19 U.S. Bureau of Labor Statistics, Characteristics of Minimum Wage Workers, 2019, Report 1085, Washington, DC,
April 2020, https://www.bls.gov/opub/reports/minimum-wage/2019/pdf/home.pdf.
20 For details, see CRS Report R43792, State Minimum Wages: An Overview, by David H. Bradley and Abigail R.
Overbay.
21 For two recent studies that review multiple minimum wage studies—and that reach different conclusions about the
main effects of minimum wage increases—see Arindrajit Dube, Impacts of minimum wages: review of the international
evidence, HM Treasury, ISBN 978-1-912809-89-9, London, November 2019, https://www.gov.uk/government/
publications/impacts-of-minimum-wages-review-of-the-international-evidence; and David Neumark and Peter Shirley,
Myth or Measurement: What Does the New Minimum Wage Research Say About Minimum Wages and Job Loss in the
United States?, National Bureau of Economic Research, Working Paper 28388, Cambridge, MA, January 2021,
https://www.nber.org/system/files/working_papers/w28388/w28388.pdf. In addition, the Congressional Budget Office
(CBO) recently published estimates of the employment and income effects of different federal minimum wage rates.
See CBO, The Effects on Employment and Family Income of Increasing the Federal Minimum Wage, Publication
55410, Washington, DC, July 2019, https://www.cbo.gov/publication/55410.
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The Federal Minimum Wage: In Brief

summary of the primary arguments that proponents and opponents make regarding minimum
wage increases.
Arguments For Increasing the Minimum Wage22
Increases Earnings
Proponents of an increase in the minimum wage often assert that raising wages can be a
component in reducing poverty for individuals and families and a direct way to increase earnings
for lower-income workers. Assuming the minimum wage earner does not suffer a loss of
employment, hours, or other wage supplements as a result of the increase, then an increased
minimum wage should close the gap between earnings and the poverty threshold. For example, a
single parent with two children who works full-time, year-round at the current minimum wage
has earnings of about 72% of the poverty threshold. An increase in the minimum wage to $12 per
hour would raise that family’s earnings to about 120% of the poverty threshold and an increase to
$15 per hour would increase family earnings to 150% of the poverty threshold.23
Increases Aggregate Demand
Proponents of minimum wage increases also argue that additional income for individuals will
result in increased aggregate demand in the economy. Adult minimum wage households have a
higher marginal propensity to spend additional income than higher-income households.
Therefore, to the extent that minimum wage increases raise the income of adult minimum wage
households, a minimum wage increase could have a stimulative effect on the economy.
Reduces Inequality
Proponents of an increase in the minimum wage argue that it could help reduce earnings
inequality by setting a higher floor at the lower end of the wage scale. At the level of an
individual business, wage compression might occur if the minimum wage increases at the low
end of the pay scale were offset by freezes or reductions in pay at higher levels of pay. That is, the
spread between the lowest earners and the highest earners at a business might narrow if the
business adjusted to higher pay for minimum wage earners by keeping flat or reducing pay for
higher earners. Economy-wide, the size of the gap between low-wage earners and middle and
high earners might decrease depending on how widely wage compression was used as a channel
of adjustment to minimum wage increases.
Reduces Employee Turnover
A higher wage may lead workers to choose to stay in their jobs longer than they otherwise would
have under a lower wage. Because high turnover is costly to businesses, proponents of minimum

22 For an example of arguments in favor of increasing the federal minimum wage, see Economic Policy Institute, Why
the U.S. needs a $15 minimum wage, Fact Sheet 219045, Washington, DC, January 26, 2021, https://www.epi.org/
publication/why-america-needs-a-15-minimum-wage/.
23 These figures, produced by CRS, are based on estimated 2020 poverty thresholds, as calculated by the U.S. Census
Bureau. For a family of three (one adult and two related children under 18) the poverty threshold is $20,852. At the
current minimum wage of $7.25 per hour, a full-time, year-round worker would earn $15,080, or 72% of this threshold.
At a minimum wage of $12.00 per hour, a full-time, year-round worker would earn $24,960, or 120% of this threshold.
At a minimum wage of $15.00 per hour, a full-time, year-round worker would earn $31,200, or 150% of this threshold.
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The Federal Minimum Wage: In Brief

wage increases argue that an increase in the minimum wage may be offset by lower
turnover costs.
Arguments Against Increasing the Minimum Wage24
Reduces Employment
Much of the popular discussion about the effects of a minimum wage increase focuses only on
one channel of adjustment—employment. In particular, opponents of a minimum wage or of
minimum wage increases assert that increases in the minimum wage will result in increased
unemployment, either broadly or for particular subpopulations of the labor market (e.g., youth,
less skilled or experienced workers), or a reduction in hours worked. In a standard competitive
model of the labor market, the introduction of or increase in the minimum wage (a price increase)
results in employment losses (demand decrease).
Does Not Reduce Poverty
Because the minimum wage is not targeted to workers in low-income households, it is possible
that the minimum wage does not reduce poverty to the extent a targeted policy might (e.g., tax
credit). The minimum wage is a relatively blunt anti-poverty policy as it may raise wages for
people not in poverty such as suburban teenagers who live in a middle- or high-income
household.
Increases Prices
Another way minimum wage increases might be absorbed is through changes in prices.
Specifically, employers facing a higher mandated minimum wage might choose, if possible, to
pass on the extra costs of labor to the consumers through higher prices. If minimum wage
increases result in an increase in the aggregate price level, then the inflationary effects would
erode some of the purchasing power of both those receiving raises and everyone else in
the economy.
Reduces Profits
A decrease in profits could be another means of adjustment to an increase in the minimum wage.
The ability of any given business to lower profits to pay for mandated increases depends on the
profit margins of that firm. Similar to differing employment effects for particular subpopulations
(e.g., youth compared to adult workers), the effects of minimum wage increases on business
income and profits are likely to vary by firm characteristics. For example, businesses with labor-
intensive operations and a limited ability to pass wage increases on through higher prices may
adjust to wage increases through lower profits, whereas more capital-intensive businesses with
greater ability to increase prices to consumers may be less prone to profit losses in response to
minimum wage increases.

24 For an example of arguments against increasing the federal minimum wage, see Michael R. Strain, A $15 Minimum
Wage Will Harm Workers, American Enterprise Institute, Statement before the House Committee on Education and
Labor On “Gradually Raising the Minimum Wage to $15,” Washington, DC, February 7, 2019, https://www.aei.org/
research-products/testimony/a-15-dollar-minimum-wage-will-harm-workers/.
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The Federal Minimum Wage: In Brief

Author Information

David H. Bradley

Specialist in Labor Economics

Disclaimer
This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan
shared staff to congressional committees and Members of Congress. It operates solely at the behest of and
under the direction of Congress. Information in a CRS Report should not be relied upon for purposes other
than public understanding of information that has been provided by CRS to Members of Congress in
connection with CRS’s institutional role. CRS Reports, as a work of the United States Government, are not
subject to copyright protection in the United States. Any CRS Report may be reproduced and distributed in
its entirety without permission from CRS. However, as a CRS Report may include copyrighted images or
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