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Analysis

While the pure model of market determination of wages may have fully explained pay for work in the past, wages in the current economy are not shaped only by the market—the laws of supply and demand alone do not set wage rates. 

For starters, the federal government sets the minimum wage—the federal minimum wage rose to $7.25 per hour in July 2009. In addition, states may set their own minimum wages, and if they are higher than the federal wage, workers in that state must be paid the higher rate. (In 2009, Washington’s minimum wage was $8.55; Oregon’s was $8.40.) Only about 3% of the work force earns the minimum wage, but most economists agree that the minimum wage affects far more workers than just these few. By setting a wage floor above market wage rates, governments influence the wages paid those earning more than the minimum wage. When the floor rises, other wages rise as well.

The federal government also influences wages through legislation regarding federal contracts. The Davis-Bacon Act requires that all private agencies and companies receiving federal funding pay the “prevailing wage.” This means that federal contractors must pay the wage paid “for corresponding classes of laborers and mechanics employed on similar projects in the area.” They cannot try to underbid competitors for a government contract by paying low wages.

Federal Minimum Wage Rates, 1995-2009

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Why It Matters Today

The job market for teenagers today is absolutely brutal, with unemployment for teens higher than it's been in generations.

Many factors contribute to the bleak jobs situation: everything from the general economic slowdown, which has forced many adult workers to take entry-level jobs formerly filled by teens, to an increasing emphasis by many students on volunteer work and unpaid internships designed to boost college apps rather than working for pay.  

But one factor, undoubtedly, is the recent increase in the federal minimum wage, which has jumped from $5.15 to $7.25 an hour since 2007.  That significant jump is great if you've got a minimum wage job... but it's bad news if you'r looking for a minimum-wage job.

So: is the tradeoff worth it?  Would you be better off with a lower minimum wage? 

Sometimes, a Song Says it Better: Minimum Wage, by They Must be Giants

They Might be Giants perform “Minimum Wage.”

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