What Is Minimum Wage?

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What Is Minimum Wage?

Let me tell you directly: minimum wage is the lowest hourly wage that employers must pay nonexempt workers, as set by federal law but often adjusted upward by state and local rules. It's essentially a price floor on hourly wages mandated by the government, meaning nonexempt workers can't be offered or agree to work for less than this amount. These wages are established by the federal government and states, and they've sparked plenty of debates over the years.

Key Takeaways

Here's what you need to grasp: the minimum wage is a legally required base pay for nonexempt hourly workers. As of 2025, the federal minimum wage in the United States is $7.25 per hour. States and local areas can set their own rates, but they have to be above the federal one. In fact, 21 states raised their minimum wages starting January 2025.

Understanding Minimum Wages

The federal minimum wage stands at $7.25 per hour in 2025, unless a worker is exempted under the Fair Labor Standards Act (FLSA). The government reviews this level occasionally, factoring in inflation or living costs, but it hasn't gone up since July 2009. You should know that former President Joe Biden pushed for a $15 per hour minimum for government workers, signing an executive order in 2021 that took effect in 2022.

History of the Minimum Wage

Minimum wage laws first appeared in the late 1800s amid sweatshop labor in industrializing countries. They were a key demand from emerging unions, alongside shorter hours and better conditions. New Zealand set the first national one in 1894, with the UK following in 1909. In the US, Massachusetts led in 1912 with a rate for women and children under 18. Labor groups pushed hard, but business opposition and a 1923 Supreme Court ruling blocked many efforts, deeming them unconstitutional. That changed with the New Deal; the 1938 Fair Labor Standards Act set it at $0.25 per hour, which adjusts to about $5.55 in November 2024 dollars. The 2007 Fair Minimum Wage Act raised it in steps from $5.15 to $7.25, where it remains in 2025.

Federal Minimum Wage vs. State Minimum Wages

The US has a federal minimum wage, but states, cities, and localities can set higher ones as long as they're not below it. If both apply, employers pay the higher rate. States often base theirs on local living costs—for instance, Connecticut's is $16.35 for non-tipped workers as of January 1, 2025, and Montana's is $10.55. As of that date, 30 states and DC have rates above the federal $7.25, with DC at the top of $17.50 and Washington at $16.66. Five states—Alabama, Louisiana, Mississippi, South Carolina, and Tennessee—have no state minimum, so federal applies. Georgia and Wyoming set theirs at $5.15, but FLSA-covered employees get $7.25. Oklahoma has a $2 rate for small employers. Florida is incrementing to $15 by 2026, at $13 in 2025, and Nebraska to $15 in 2026, at $13.50 in 2025.

Municipal Minimum Wages

Cities can impose even higher wages for high-cost areas. Take Chicago: its minimum is $16.20 for employers with four or more workers as of July 2024, while Illinois state's is $15 in 2025.

Minimum Wage Exceptions

Some workers are exempt from standard minimum wage rules. For tipped workers who get over $30 in tips monthly, a $2.13 per hour rate applies as of July 2024, but employers must make up any shortfall to reach federal minimum. Full-time students at universities, retail, or services can get 85% of minimum, up to 20 hours weekly during school. Vocational students get at least 75%. Workers under 20 can earn $4.25 for the first 90 days. Those with disabilities affecting productivity, like blindness or mental illness, can be paid less under FLSA.

The $15 Minimum Wage

Companies like Amazon, Bank of America, Costco, Chipotle, CVS, and Starbucks pay at least $15 per hour. Debates rage over a federal $15 wage; Biden's plan only affected government workers, now at $17.75 in 2025. Supporters say it creates a living wage, boosts productivity, cuts inequality, grows the economy, and retains staff. Critics argue businesses should set pay, that it might not boost spending power, could raise unemployment, and lead to outsourcing.

What Is a Living Wage?

A living wage is the minimum income needed for basic needs, based on housing, transport, and childcare costs. Minimum wage purchasing power peaked in 1968, then fell due to inflation despite rising productivity.

What Are Efficiency Wages?

Efficiency wages are above-minimum pay to keep skilled workers productive and loyal, per efficiency wage theory.

Which State Has the Lowest Minimum Wage?

Georgia and Wyoming have $5.15, but FLSA requires $7.25 for covered employees. The same for the five states without a minimum.

The Bottom Line

The FLSA sets the minimum at $7.25 per hour in 2025, unchanged since 2009, with periodic reviews. States and localities can require higher, as long as it's above federal.

What Is Minimum Wage?

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