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SUMMARY

After being increased numerous times during its nearly half century of existence, the federal minimum wage of $3.35 per hour has not been raised since January 1981. In the five years since then, prices have increased by about 26 percent, thereby reducing the purchasing power of the minimum wage. The minimum wage also has fallen relative to poverty thresholds, because these thresholds are adjusted for changes in prices. A person who worked year-round full-time in 1985 at the minimum wage rate of $3.35 per hour--and who had no other source of income--would have had a total income slightly less than the poverty line for a nonelderly two-person family; in 1981, this level of earnings would have been just below the poverty threshold for a family of three.

The relationship between the minimum wage and poverty is more complicated, though, because only a minority of minimum wage workers are employed year-round on full-time schedules. Moreover, whether a minimum wage worker is poor also depends on the amount of other income received by the worker and family members, and on the applicable poverty threshold for that family, which is determined by family size. The empirical analysis reported here attempts to sort out some of the linkages between low wages and family incomes. The major findings include:

• In March 1985, about 7 percent of aU workers who reported being paid on an hourly basis were paid the minimum wage rate, and 3 percent were paid below that rate.¹
  
  
• Only one-fifth of the 5.2 million workers who reported being paid at or below the minimum wage in March 1985 had worked year-round full-time in 1984, and only about 120,000 of these year-round full-time minimum wage workers were poor. The latter estimate is subject to a wide range of uncertainty, however.
  
  
• Four-fifths of all minimum wage workers are not poor, although those earning the minimum wage are much more likely to be poor than those whose wage rates are higher. Part of the explanation for why so many minimum wage workers are not poor is that over two-thirds of them are in families in which at least one other member has a job.
  
  
• Just one-quarter of all poor hourly wage workers are paid at or below the minimum rate, although poor workers are more likely to be paid the minimum than are nonpoor workers.

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1. Workers could legally be paid a wage rate below $3.35 per hour if they were not subject to the minimum wage rate or if they were subject to a special lower rate. Workers also might inaccurately report their wage rate.