Minimum Wage

Minimum Wage

Key takeaways

• Minimum wage is the legally mandated lowest hourly pay for nonexempt workers.
• Federal minimum wage (U.S.) is $7.25 per hour as of 2025.
• States and localities can set higher minimums; employers must pay the highest applicable rate.
• As of January 2025, 30 states and the District of Columbia have minimums above the federal rate, and 21 states raised their minimums effective January 2025.

What is the minimum wage?

The minimum wage is a statutory price floor for hourly pay. Under the Fair Labor Standards Act (FLSA), nonexempt workers cannot be paid less than the applicable minimum wage. The federal rate sets a baseline, but states, cities, and counties may require higher hourly wages to reflect local cost of living.

Federal rate and recent changes

• Federal minimum wage: $7.25 per hour (unchanged since July 2009).
• The federal government periodically reviews the rate, but Congress has not raised the statutory federal minimum since 2009.
• Separate federal actions have raised pay for certain federal contractors and federal employees in specific circumstances.

History (brief)

Minimum wage laws emerged in the late 19th and early 20th centuries to address poor working conditions. The U.S. adopted a federal minimum with the Fair Labor Standards Act of 1938 (initially $0.25/hr). Incremental federal increases over time reached $7.25/hr following the Fair Minimum Wage Act of 2007.

Federal vs. state and local minimums

• Employers subject to both federal and state law must pay the higher rate.
• State and municipal rates reflect local costs of living and policy choices. Examples (as of early 2025):
• District of Columbia: $17.50/hr
• Washington state: $16.66/hr
• Connecticut: $16.35/hr
• Chicago (city): $16.20/hr for employers with four or more employees (July 2024)
• Five states had not adopted a state minimum wage as of January 1, 2025: Alabama, Louisiana, Mississippi, South Carolina, and Tennessee. In those states, the federal minimum applies where the FLSA covers the worker.

Notable state exceptions:
* Georgia and Wyoming have statutory rates below the federal level ($5.15), but affected employees covered by the FLSA must be paid the federal $7.25 rate.
* Oklahoma includes an exemption for very small employers in some circumstances (e.g., $2/hr for certain small employers under specific thresholds).
* Several states set phased increases toward $15+ per hour (for example, Florida and Nebraska with multi-year schedules).

Common exceptions and special rules

Certain workers or programs are subject to alternative wage rules under federal or state law:

• Tipped workers
• Federal tipped minimum: as low as $2.13/hr (as of July 2024) if tips bring total pay to at least the applicable minimum wage; employers must make up any shortfall.
• Students
• Full-time students working for universities, retail, or service establishments can be paid up to 85% of the minimum wage while school is in session; student-learners in some programs may be paid 75%.
• Youth/first 90 days
• Workers under 20 may be paid a youth training wage (e.g., $4.25/hr) for the first 90 consecutive calendar days of employment.
• Workers with disabilities
• Under FLSA provisions and special certificates, some workers with disabilities may be paid subminimum wages tied to productivity standards.

The $15 minimum wage debate

Proposals to raise the federal minimum to $15/hr have been widely discussed and remain politically contested.

Arguments for a $15 federal minimum:
* Moves wages closer to a “living wage” and reduces income inequality.
* Can boost worker retention, productivity, and consumer spending.

Arguments against:
* Critics say market forces should determine wages and warn a rapid increase could reduce low-wage employment, encourage automation, or push jobs offshore.

Some large private employers have voluntarily adopted $15+/hr minimums. Several states and localities have also enacted multi-year rises toward $15 or higher.

Related concepts

• Living wage: the income level needed to meet basic needs (housing, food, transportation, childcare); varies by location.
• Efficiency wages: wages set above market minimums to increase productivity and reduce turnover.

Which states have the lowest statutory wages?

Some states either have no state minimum or statutory rates below the federal level:
* No state minimum (as of Jan 1, 2025): Alabama, Louisiana, Mississippi, South Carolina, Tennessee.
* Statutory rates below federal: Georgia and Wyoming (but FLSA applies where covered).

Bottom line

The FLSA establishes a federal minimum wage that serves as a baseline; as of 2025 it is $7.25/hr. States and municipalities can set higher minimums to reflect local economic conditions. Multiple exceptions and special wage programs exist for tipped workers, students, youth, and workers with disabilities. Debate continues over raising the federal minimum to $15/hr, with states, cities, and many employers pursuing their own policies.