You might think that $7.25 is the minimum compensation one could get for an hour's worth of work in the USA, as the name implies. Unfortunately, there are a variety of loopholes and power plays that allow employers to pay their employees much less than this--legally. I am not talking about situations where wage is below $7.25 but take-home pay is higher. In America, there are fully legal strategies to pay lower than minimum wage.
There are other important discussions to be had about the minimum wage, too. Cycles of poverty. Predatory business practices. Corruption and intimidation. Cost of living adjustments. This post is not about that. The purpose of this post is to make sure everyone is on the same page that
the minimum wage is not $7.25 an hour.
First: how rich do they get? (Skip if you're already mad)
I first thought about this post when I read an article about the new richest people in the world. At a time when global inequality is at the highest it has ever been, I began to think about how to justify this massive wealth when people regularly earn minimum wage (or less). Jeff Bezos, founder of Amazon and
sometimes the world's wealthiest person, is worth $123.9 billion at the time of writing. Let's do a quick thought experiment to contextualize this:
Imagine the average American would pick up a dollar or quarter off the ground, but not a dime or penny because they aren't worth the trouble. For Jeff Bezos, this would be mean $660,000 is too much of a hassle. This could be
a nice house in queens with a FREE sign and the keys in the door or a couple of luxury cars. (Neil deGrasse Tyson originally used a similar thought experiment with himself and Bill Gates)
Now, we all think people who have more difficult or more important jobs deserve better compensation. Likewise, the people that took a risk and paved their own way should reap their spoils. But how can you justify one man's time as being worth 2,760,000 times that of the average person? He made $9,278,846.15 every hour in 2017 if you assume 40-hour weeks and no vacations, which is incorrect. Very few people will ever interact with that amount in their lifetime, let alone in an hour.
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| Minimum Wage vs. Real Wage (from the Economic Policy Institute) |
In the last paragraph, I compared Jeff Bezos to the average person in America. The situation is even more dismal for half of our country. His average hourly wage would be more than 1,200,000 times higher than the lowest wage you could possibly earn in America if minimum wage were actually our minimum. In reality, there are millions of Americans far below this amount. In a quick Facebook status, I discovered many of my friends and relatives have experienced this at some point in their lives. There are huge moral, social, and economic implications to this horrific practice, but I am saving that for another time. Here, I just want to give a brief introduction to how and why the minimum wage is way lower than we say it is.
Disabilities
To me, this was the most shocking loophole in the minimum wage I encountered. Although the opposite seems more just, it turns out it is legal to pay those with disabilities less than the fully-abled in the United States. This is because of a 1930s-era modification to the Fair Labor Standards Act, which allows employers to apply to the Department of Labor if they have employees with disabilities and, after approval, pay them less than $1 per hour. Though this only affects 3% of those with disabilities in the workforce, that amounts to almost
200,000 people being paid below the minimum wage. Again, this isn't even beginning to account for the huge disparities in employment rate or how they're treated, it's just the wages for the work they do.
Loopholes by the hour
It is painfully common to overhear restaurant goers complain about giving "extra money" to unskilled waitresses and waiters who already don't deserve the "minimum wage." Lack of appreciation for the service industry aside, this statement is also flat-out wrong. First, tipping in the USA is not "extra money" or a courtesy on behalf of the magnanimous and ineffable customer because
servers do not make the minimum wage everywhere. In my state, North Carolina, I worked as a waiter for $2.13 an hour plus tips, the
lowest federally possible. But wait, that's not all! In addition to the 18 states that pay $2.13 per hour, some states differentiate between different services and pay as low as $1.75 an hour. That isn't even covering the deductions I'll talk about later.
"Well," you say, "that's not working for below minimum wage because the employer has to pay the difference if your tips don't make $7.25 or more!"
You are correct about the employer paying the difference, but this does not actually mean people do not work for below minimum wage. To show this, I'll share a personal story.
One day, after working 5 hard hours on my feet and having up to 8 tables at a time, I came away with about $40 in tips, making my total earnings around $50 for 5 hours. Not bad! After closing, though, my boss made me clean the floors, bathrooms, and prepare for tomorrow, all while still clocking in at $2.13 an hour. This work had zero chance at being tipped. I came away from 7 hours of pretty difficult labor with $54, or down to $7.70 per hour down from $10. My two hours of cleaning earned me some back pain and $4.26.
Tips don't just subsidize the wages of those who provide service to the customer either. My mother, who has been kind enough to contribute to this post, recalls being required to give some of her tips to the busboys at a restaurant where she worked. If this doesn't seem right to you, you're not alone; tip pooling is now illegal in some states, but this has not
stopped the practice. President Trump is also trying to
bring it back and extend the practice to cooks, who currently earn much more than others in restaurants.
Working on commission or as a contractor
Imagine, for some reason, there were a profession where you could be paid based upon how far you can run--a dollar per mile. For me, this would mean earning $6-7 or maybe $8 per hour on a good day. In most cases, this means being paid below minimum wage. This wouldn't be illegal, though, because the possibility of earning more exists and is at least partially based upon one's skill. An employer could say: "Well the
men's world record would earn you $13.23 an hour and the women's would get you $11.51. It's not my fault you can't run fast enough!"
Such is the case for many who work as contractors or by commission. Being paid based on one's skill is perceived as one of the most important factors in wage determination in America. This does not mean the loopholes that arise are defensible; a minimum wage is just that and cannot be lowered for any reason. Further, sometimes the determinants of one's pay are not even in the control of the employee. A friend of mine taught classes at a rate of $1 per hour per student. Having below 8 students was legal because the type of work was technically contracting.
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| Minimum Wage Globally (from CNN money) |
One might counter-argue: "What about the self-employed? If you can't sell enough in the real world, you won't make minimum wage either!"
The problem with this argument is the application of the fruits of labor. An employee working on commission or as a contractor has entered into an agreement with someone who will in some way benefit from their work. This can be hard to measure in many cases, but the responsibility to make sure the exchange is profitable is ultimately on the party asking for the work to be done. If the exchange was a bad idea, the fault should be on the one who came up with it. A self-employed person keeps everything they earn and are responsible for themselves.
Further, one could encourage contractors not to take unprofitable contracts or for commissioners to work for successful companies, but this is not always possible. For artists who need to build a portfolio or those in situations where something is better than nothing, sub-minimum wage contracts are a familiar experience.
This is how I worked 13 hours for $65 at a zip line, or exactly $5 an hour.
Internships and volunteer work
Any young person today is familiar with the rat race that is entering the workforce. Entry-level positions somehow require 3 years of experience. How is this possible? They respond, "internships and volunteer work."
According to
some measures, almost half of all internships are unpaid and, by definition, all volunteer activity is unpaid. Further, many volunteer and internship opportunities cost money in the forms of subsistence during the experience, travel costs, or a fee in other cases; a friend of mine helping with this story paid $700 to volunteer for 'experience' in their field.
How is this legal you ask? Well, a surprising amount of the time it is not. According to a 2013 article by the Washington Post, an internship must satisfy the following criteria to be legally unpaid:
"1) The internship, even though it includes actual operation of the facilities of the employer, is similar to training which would be given in an educational environment;
2) The internship experience is for the benefit of the intern;
3) The intern does not displace regular employees, but works under close supervision of existing staff;
4) The employer that provides the training derives no immediate advantage from the activities of the intern; and on occasion its operations may actually be impeded;
5) The intern is not necessarily entitled to a job at the conclusion of the internship; and
6) The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship."
If your internship does not meet these criteria, tough luck. My friends' personal experience confirm that even 5 years after this ruling unpaid internships often amount to busy work or slightly better. Some have even had positions identical to those of paid employees, including hours and responsibilities but not including age. Whether due to exploitation or design, the internship and volunteer system is work below minimum wage.
Work that provides housing or food deductions
As touched upon in other sections, any employer that provides housing or food can
legally reduce their employee's wages to below the state or federal minimum. If the employee gives consent, this also includes union dues, charitable contributions, or insurance premiums. Deductions for required uniforms, cash shortages or lost sales
are legal too, but not if it reduces the wage below the minimum.
In some cases, the deductions can leave very little leftover. Essentially, this means places like summer camps can have nearly free labor for allowing employees to stay in a building that was already built and giving them food they have no choice but to eat.
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| US Federal Prison Population Over Time |
Work done in incarceration
This section should be the most self-explanatory as there is an abundance of information on abuse of prison labor and the prison-industrial complex. Things get even scarier when the school-to-prison pipeline and unequal policing and sentencing are considered. Here are some quick facts:
- The average prisoner makes between $0.14 and $0.63 per hour, but can make as little as, well, nothing
- The minimum daily wage is not only below $4, but has actually decreased over time
- The above wages are subject to deductions, which can leave a day's work compensated at $0.50
- Prison labor often drives local companies and service providers out of business
- Things like phone calls can cost money in prison (sometimes $10 or more)
- Refusing to do labor can result in punishment
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| Incarceration Rates Globally |
These conditions affect over 2.3 million people in the USA. Of course, those who commit crimes do so knowing they are risking their freedom. However, there is no way of arguing that forcing people to do labor that is either close to or literally unpaid is not a form of slavery. There is a
long list of human rights violations associated with prisons in the United States.
Informal work
Although this will come as no surprise to many, it is true that undocumented or informal workers are paid far below minimum wage. The legality of this situation is murky, but this is know to subject people to horrific working conditions and extremely low pay. It cannot be argued that this work be done in formal sectors either; most work done by undocumented or informal labor is
simply impossible to hire through legal means. In fact, recent immigration crackdowns have lead to food shortages.
Even for those with documents, informal work can become a trap. Suppose you were offered $1,000 to clean out a storage unit or mow lawns over the summer. If you are able to do this work quickly, you could make a great wage! But if there were hidden complications or other restrictions, you have little recourse to get back those wasted hours working below minimum wage.
Unpaid overtime
By law, overtime is supposed to be compensated at 1.5x the normal hourly wage, but again there are loopholes. In this section, I'll share two personal stories from friends of mine who decided to help out with this post. A complete list of the exemptions can be found
here.
First, as an under-18, there are limits to the amount of hours you can legally work. These can depend on the profession and state, but generally you're looking at about half the time. This concept is sometimes lost on employers, though, who hire children based on the work to be done and not the hourly wage. One friend of mine was hired at a mechanic's shop and was told to clock out before continuing on work that was unfinished when reaching a daily legal limit of hours. Bullying is commonplace for children working, but it is not limited to those situations.
Another loophole is seasonal employment. A friend of mine worked a summer job for a salary in a state where the minimum wage was $11.00 per hour. Although the stated terms were 40 per week at a rate of $16.47 per hour, staffing shortages eventually drove the required hours higher without changing the pay. Later in the season, hour increases soared to almost double and drove the pay rate to $8.57. On the worst days, the pay equated to $7.29 per hour, effectively eliminating the state's sovereignty by countering its minimum wage increase. If the same situation happened to a seasonal employee in another state, this loophole could drive pay down to $3.21 per hour without accounting for any of the loopholes I mentioned earlier.
Conclusion
Make of this information what you wish. I personally have some very strong feelings about income inequality and its relationship with democracy and sociopolitical stability, but this is not that post. My main intention with this piece was to focus attention on how backwards our minimum wage really is and to share some stories of myself and my friends. Once we all understand the facts about minimum wage, we can better work together to see it improved.
