Minimum wage

In plain words

A minimum wage is a law that says no employer may pay less than this much an hour. The US federal minimum was set at 25 cents in 1938, when Congress passed the Fair Labor Standards Act. It has been $7.25 since July 24, 2009.

States and cities can set higher minimums, and many do. Of the 50 states and Washington, DC, 31 are above the federal level; the highest is $18.40 (District of Columbia). Elsewhere the federal $7.25 applies to most jobs.

Because the federal number changes only when Congress acts, inflation eats into it between raises. The $7.25 set in 2009 has lost 36% of its buying power since.

Example

One level deeper

The federal minimum had its highest buying power in 1968: $1.60 an hour then is worth about $15.79 today. Today’s $7.25 is 54% below that peak in real terms.

Economists argue about the effects. Basic supply and demand says a higher price of labor means fewer jobs. Many studies of moderate increases since the 1990s found small or no job losses, perhaps because employers have some power to set wages. Large increases, compared with local wages, are less studied and more uncertain.

There are exceptions: under federal law, tipped workers can be paid as little as $2.13 an hour by the employer if tips make up the rest, and workers under 20 can be paid $4.25 an hour for their first 90 days (federal rates as of 2026).

The federal minimum wage since 1938, nominal and real

The stepped line is the legal rate in dollars of the day; the other is the same rate in today’s dollars. Each raise lifts the real value, and inflation wears it down until the next one.

Why it matters

It sets the pay floor for many jobs in restaurants, retail and other services, and nudges pay just above it.

It is one of the most debated economic policies: a raise lifts the incomes of low-paid workers but may raise prices or slow hiring.

Its real value shows how inflation quietly rewrites any law written in dollars.

A common mistake