Minimum Wage

The lowest hourly wage that employers are legally allowed to pay their employees

Author: Elliot Meade
Elliot Meade
Elliot Meade
Private Equity | Investment Banking

Elliot currently works as a Private Equity Associate at Greenridge Investment Partners, a middle market fund based in Austin, TX. He was previously an Analyst in Piper Jaffray's Leveraged Finance group, working across all industry verticals on LBOs, acquisition financings, refinancings, and recapitalizations. Prior to Piper Jaffray, he spent 2 years at Citi in the Leveraged Finance Credit Portfolio group focused on origination and ongoing credit monitoring of outstanding loans and was also a member of the Columbia recruiting committee for the Investment Banking Division for incoming summer and full-time analysts.

Elliot has a Bachelor of Arts in Business Management from Columbia University.

Reviewed By: Hassan Saab
Hassan Saab
Hassan Saab
Investment Banking | Corporate Finance

Prior to becoming a Founder for Curiocity, Hassan worked for Houlihan Lokey as an Investment Banking Analyst focusing on sellside and buyside M&A, restructurings, financings and strategic advisory engagements across industry groups.

Hassan holds a BS from the University of Pennsylvania in Economics.

Last Updated:August 24, 2023

What Is Minimum Wage?

The minimum wage is the lowest sum of money that an organization can use to lawfully compensate its staff members for what they do. Anything below the minimum wage is prohibited.

Each state has different wage standards based on its economic conditions and regulations. 

Starting from December 31, 2022, every diligent worker in the state of New York will be joyfully obligated to receive a minimum hourly wage of $14.20, as per the Minimum Wage Act of the New York State Labour Law.

This incredibly significant legislation has been implemented to thoughtfully and compassionately address the past injustices and arduous struggles faced by hardworking individuals.

Taking us back to a time when regulations were lacking, both gallant men, admirable women, and innocent children were dreadfully subjected to exploitation. They were paid a pitiful sum that woefully fell short of their actual worth.

We are going by the standards in New York City. This is also based on the population and the economy that runs in this state. The cost of living can be a major factor in determining the minimum wage rate in a particular state. 

What is the rent, food price, and inflation rate in your state? The government may adjust to those rates, thus why some states, such as California and NYC, have a higher minimum wage than Alabama.

If there is an employer who does break the wage law, and an employee is not receiving the right amount of funds or wages they are due, then the employer would be opening themselves to criminal action against them, and they can be sued.

They have the option to visit the designated wage site of their respective state, where they can access and complete the appropriate complaint form. This proactive step allows individuals to voice their grievances and seek resolution of any potential wage-related discrepancies.

Key Takeaways

  • The minimum wage varies by state, based on economic conditions.
  • Some of the advantages of Minimum Wage are Salary increase, poverty reduction, gender equality, improved productivity, and consumer spending
  • Some of the disadvantages of Minimum Wage are Price hikes, job cuts, increased taxes, challenges for small businesses, and automation risks
  • The Fair Labor Standards Act (FLSA) protects workers and establishes wage standards.
  • The current minimum wage may be insufficient; adjustments are needed for living expenses and inflation.

How Does The Minimum Wage Work?

It is imperative that employers follow every work-related regulation. These regulations exist to maintain order, protect our rights, ensure safety, and create a fair society. 

The federal government is the main administrative body that regulates the whole nation, whereas the state government laws regulate you if you live in them.

A state can have a law that may refute the federal law about minimum wages. The state you live in can either choose to follow the federal rules that are passed, or they can create a law opposing this change in wages.

The merits of having a baseline wage set by the government is the fact that if a state has low minimum pay, the central government can override it and make the state obey the national minimum wage, which could be more.

There is also the possibility that the specific city a resident lives in could have a higher wage than the state wage. 

Some questions that can arise are what if they are tipped workers? Even though workers can get into minimum wage jobs, with tip money coming in, the wage for a specific worker goes up, and sometimes it’s way more than the wage standard.

For a workplace like this, the wage must start at $2.13 an hour for a job with a high tipping rate. The government must consider food costs, rent, and cost of living.

This was why the Fair Labor Act was passed in 2022 to help Americans get a raise in their salary which would help them get a better chance at having a livelihood.

Generally, many rules may be exempt from temporary setups or businesses. For example, the carnival that’s in town for the summer or a temporary restaurant, but they are still mandated by the minimum wage law, which they must abide by.

Twenty-nine states in America have minimum wage laws. By far, Alabama is the state with the lowest baseline wage that is given. 

The new wage increase is related to Americans' livelihoods in NYC. If someone wants to live in a state or a city, they must stand a decent chance of affording a livelihood there.

Advantages of Minimum Wage

Minimum Wages have the following advantages:

1. Increased Salary

Salary increase for workers who were getting paid less. This bill would raise their salaries. This would help many workers live a decent life and pay some bills they were behind on.

2. Poverty 

The amount of people being lifted out of poverty is almost a million. This is a high number of people. Helping a million people escape poverty and afford food and clothes should be a human right.

3. Gender

It would reduce gender and racial inequality. Women of color still suffer from the wage gap. 


The minimum wage would raise the pay of women of color and help close the gap that we see in the minority group.

4. Essential Workers

Finally, during the pandemic, we had a lot of essential workers risking their lives to help us run our lives by opening up the grocery store or showing up to help with cleaning. They were paid the minimum wage.

5. Improved Worker Productivity

Fair compensation via minimum wage can boost employee motivation, satisfaction with work, and efficiency, resulting in increased net workplace performance.

6. Improvement in Consumer Expenditure

Hiking the minimum wage might increase consumption by providing low-paid personnel with additional cash that they can spend on products and services, thus driving economic growth.

Now, that wage has increased. These workers would have a better chance and opportunity to get better pay for the work they have done and are doing. 

Disadvantages of Minimum Wage

Following are the disadvantages of Minimum Wage

1. Increased Prices

As wages increase, so will the market, and prices will increase to keep up with the market. Owners of businesses will have to pay their employees higher, resulting in price hikes.

2. Job Cuts

Trying to pay for employees costs a lot of money. In this case, it is reasonable for employers to fire or cut down employees because they can’t afford to pay for their labor anymore.

3. Taxes

When people earn more money, their taxes also increase. The increase in taxes enables greater sums to be taken away from individuals; as a result, a drop in their ability to buy things.

4. Business Viability and Small Enterprises

Small businesses, in particular, may struggle to absorb the increased labor costs associated with a higher minimum wage. 


Increased labor costs can put a financial strain on these businesses, potentially leading to closures, reduced growth, or limited investment in the business.

5. Automation Possibility

To offset the costs associated with increased labor prices, some organizations can opt to automate particular tasks or operations, reducing the need for employees. This could result in job displacement and a shift towards more technology-driven operations.

6. Regional Disparities

Setting a uniform minimum wage across regions may not account for variations in the cost of living, economic conditions, or labor market dynamics. It could disproportionately impact businesses and workers in regions with lower economic development or higher living costs.

Having a pay rise is beneficial and was long due. For some time, Americans didn't get the pay raise they deserved while inflation and prices rose. Now we have some sort of outlet to help us pay the bills.

Fair Labor Standards Act

The Fair Labor Standards Act was passed in 1938. This was a time when regulations and rules were not set, and children and women alike were being exploited along with men. They were paid below their means and couldn’t afford a livelihood.

The FLSA was passed to help protect workers. At the time, many American workers didn’t have the bargaining power they needed to find themselves to ask for a better salary, income, and output until this regulation was implemented.

This gave more opportunities to earn not just for full-time but also for part-time workers. Employees were paid below the standard living wage, which was expected at that time. With prices rising, the wage was low; this act was passed to help people with no power.

1. Congress Part 1

This was the beginning of the bill passed by President Theodore Roosevelt, who was trying to protect the labor of workers. 

  • The initial rate was 40 cents an hour. 
  • The average number of working hours was 40 hours a week. 
  • The minimum age to work was 16.

They had set the age limit because many people who were also working were children. 


These children were 12 years old, and some worked at 9 or 10. Women were still given half of what the men were getting earned. 

When that bill was introduced, workers normally worked 60 hours a week, and the wage was about $4 a week, which was starving the citizens who worked in these jobs. Theodore spoke about how this was torture for citizens.

2. Congress Part 2

The issue with Congress is because of the money loss that would come with raising the minimum wage, many conservatives and republicans didn’t want the wage act to be passed.

This only serves the purpose that a living wage for workers and employees was not agreed upon even though it was the most humane thing to do. The sweatshops and the child labor work were something Roosevelt wanted to diminish.

This was also a time when many workers were striking against the inhuman conditions at the time. 


Many unions were being made to protect the workers, which also had Roosevelt under fire because of the protest.

3. Congress Final Part

This time, Congress would be pressed harder by Theodore Roosevelt. The bill was eventually passed, but some repercussions were met, and the government had to adhere to them.

There were many protests from southerners who didn’t like the idea of paying 40 cents an hour along with giving into the wage. So to appease them when the bill was introduced, instead of 40 cents, they lowered it to 25 cents an hour.

After a while, the wage law was brought up higher and higher as times changed, and more civil rights movement acts were passed. 


This helped us gain the current wage and benefits such as social security, etc.

The FLSA was an important part of today's wage laws and regulations. As inflation increases, the government recognizes that there needs to be higher wages to meet the standard of living of the current times.


The conservative/republican side didn’t want there to be a minimum wage law passed because the labor was so cheap and profit was being made.

Is Minimum Wage Enough?

We now question whether the current wage is enough for one person to sustain a healthy lifestyle that is not borderline poverty. This assumes they are getting paid $15 an hour while also working 40 hours a week.

You would make $600 a week while working 40 hours a week. This is before taxes. We need to assume that there will be taxes levied, such as:

  • Medicare 
  • Social security 
  • Federal tax

For the sake of argument, let’s say we have a 20% tax on $600. This would equal $480. Now your weekly went down to $480; if we’re making $480 a week, that would mean we would make $1920 monthly.

Second, let's assume you live alone and are responsible for your groceries, transportation, and utilities. With $1920, renting an apartment in NYC would not be possible. If you want money left, you’d probably need a roommate.

Let’s say you're renting an apartment for $1400. You would need to pay half of the rent, which would be $700. From our monthly, we now have $1220 left. Let’s say utilities which would be electricity is about $150. From there, the monthly would go down to $1070.

You buy groceries, and groceries cost you about $200 a month. This would leave you with the amount of $870 a month. If you take transportation, you’re probably spending $100 a month, leaving you with $770.

If you have cable and internet, you would probably have a monthly payment for cable and high-speed internet of $140 more or less, depending on your provider. If you shared half of it with your roommate, you’d be left with $700. This is just typical everyday stuff you’d be paying for. 

The average American is spending almost $3,189 on their expenses. We gave you an estimate of what the average with the menial would look like in the everyday life of someone who is making $15 an hour for 40 hours per week. 


Someone with pets or other monthly payments must abide by and may have more money taken away, especially with inflation going up daily. 

The minimum wage policy has some positive and negative aspects. This all depends on your living situation. If you’re living with your parents, then making the current wage will still leave you with some money.

With inflation and new economic policies or a rise in taxes, new regulations or higher wages must be put in. This is because many would need to adjust their lives to the economic situation at hand. The purpose of minimum wage was always to protect workers.


Each state has its own minimum wage rules. It considers the cost of living to decide on the lowest amount of money companies have to pay their workers.

Having a baseline wage has its advantages. It helps people with low incomes by making sure they get better pay. This can lift them out of poverty and reduce pay differences between genders and races. It can also make workers more productive.

But raising the baseline wage has disadvantages. Due to higher employee wages, businesses could raise prices to recover those costs.

Increasing baseline wages could also lead to job cuts because businesses might struggle to afford higher wages. People might end up paying more in taxes, and small businesses could face some challenges.

The Fair Labour Standards Act (FLSA) was established in 1938 to safeguard workers from unfair treatment. It aimed to improve their working conditions and ensure they were paid enough. It dealt with issues like child labor and low wages.

While it's important to increase the baseline wage, we need to keep discussing and adjusting it because the government wants to ensure that it's enough for people to live decently, especially with rising prices & inflation.

Researched and Authored by Garv Mittal | LinkedIn

Reviewed and Edited by Mohammad Sharjeel Khan | LinkedIn

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