The U.S. Labor Market and Compensation Trends

Institutions

FLSA and State and Local Minimum Wages.

• The FLSA minimum wage provision has increased several times in absolute terms since enactment in 1938. The increases have not kept up with the cost of living so the minimum wage has declined in real terms.
• The current federal rate is $7.25 with some states and cities having minimum wage rates over $15/hr. States must at least observe the federal rate, but they can set their own, higher minimum. (See the Department of Labor for latest rates.)

Prevailing Wage.

• An employer must pay a prevailing wage reflecting the relative U.S. labor market rates based on the job, industry and geography in order for an H-1B Visa to be issued.
• To fill skill-based demand, organizations are importing workers. However, when the prevailing wage in the U.S. is relatively high compared to other global labor markets, then offshoring or exporting jobs is pursued by organizations.

In the U.S. there are unions and government legislation that directly impact labor markets. Let's look at the Prevailing Wage for Immigration and the FLSA (Fair Labor Standards Act) in more detail as well as the collective bargaining framework.

Unions

Unions negotiate on behalf of their members with the employer to define employment conditions like wages, working hours, overtime, holidays, sick leave, vacation time, retirement benefits, health care, training, and grievances. Unions not only win wage gains for their members, but often non-union employees see an increase in their pay to keep up with union gains.

• A collective bargaining agreement is established for a stipulated period and these negotiation services are paid for by the employees submitting membership dues to the union.
• Union agreements can cover a single firm, an entire job family/occupation, an industry or a specific geography.

As union membership has declined, 50% from 1980 to 2020 (Source: Bruegel, Collective Bargaining is Associated with Lower Income Inequality), and with it the power of collective bargaining, the incomes of middle-wage earners in particular have at best stagnated (Source: Economic Policy Institute, Unions Help Reduce Disparities and Strengthen our Democracies).