Introduction In the United States, wages of the private and government sector employees are mostly governed by the

market forces or by the collective decision of the labor union. The Fair Labor Standards Act was passed to set the minimum wage rate of all sectors of employees and all the state under the union must follow it. Out of the total states in USA 14 have adopted their own minimum wage rates which are higher than the federal rates. For certain federal or state government employees are paid according to the prevailing wage determined by the prevailing Davis-Bacon Act. Activists are promoting the idea of a living wage rate which emphasis for giving living expenses and other basic necessities. History of Wage rates in USA In the year 1912, the government of Massachusetts recommended that there should be different wage rates for women and children. In the next 8 years around 13 U.S states passed the minimum wage law for setting the lowest wage for every employee. The Lochner era United States Supreme Court consistently made it compulsory for every state to set minimum wage laws. these laws, as per the court were unconstitutional for negotiating with the ability and skills of each employees. The first attempt by the federal government to set up a nationwide minimum wage act was during 1933, with a $0.25 per hour standard wage and the act was known as National Industrial Recovery Act. In the year 1935 during a court case, Schechter Poultry Corp. vs. United States, the United States Supreme Court then abolished the minimum wage act. The minimum wage was restructured in the year 1938 (known as the Fair Labor Standards Act), again at $0.25 per hour. The minimum wage was at its highest purchasing value ever in 1968, and the value was $1.60 per hour. During the period between January 1981 and April 1990, the minimum wage was stagnant at $3.35 per hour. Again during the period from September 1, 1997 to July 23, 2007, the federal minimum wage again remained constant at $5.15 per hour, which was a new record in the constant wage rate. Then the Federal government gave the states the power to set their own minimum wage rate below the federal level. Till July 1, 2010, 14 states adopted this act of federal government. Some government bodies, such as counties and cities, kept their minimum wages which were higher than the entire state. One such example is Santa Fe of New Mexico, which had $9.50 per hour minimum wage which was the maximum in entire nation, until San Francisco observed rise in its minimum wage to $9.79 in 2009. On November 7, 2006, six states (Arizona, Colorado, Missouri, Montana, Nevada, and Ohio) agreed to increase the statewide wage. The value increased was ranged from $1 to $1.70 per hour. Politicians in the United State support linking the minimum wage of employees to the Consumer Price Index, in return increasing the wage, each year based on increases in the Consumer Price

Index. Till date, Ohio, Oregon, Missouri, Vermont and Washington have interlinked their minimum wages to the consumer price index. Graph Interpretation
130.000 125.000 120.000 115.000 110.000 105.000 100.000 95.000 90.000 85.000 80.000 75.000 70.000 65.000 60.000 55.000 50.000 Output Per Person Unit Labor Cost Unit Nonlabor Payments Real Compensation Per Hour

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From the above graph the following interpretation can be drawn out, firstly the unit non labor cost has been constantly increasing and also the output per unit, the reason given for this may be that with increase in benefits and perks the employees productivity rises and similarly the productivity line also shoots up with the non labor cost. The real compensation also varies similarly to the line of unit non labor payments and output per person thus it can be concluded as the real compensation value is directly dependent on the previously mentioned variables. Looking at the unit labor cost line we can know that the graph is varying constantly between the 95 and 110 indexes throughout. Though the unit labor cost is not showing steadiness, it has significance in the total consumption as it forms a major part of the total consumption i.e. around 70% as seen in the above theory. Thus from the graph we can draw an idea that the selected variables are related closely but the exact relation cannot be stated for which we are running the

2011-10-01

regression. The regression output will help us to understand clearly the strength of dependency of each independent variable on dependent variable.

Literature Review According to a report published in Reliable Plant magazine the Private sector of US Employee Spend about 27.42$ per hour worked for real compensation during 2009, The Bureau of Labor Statistics of US reported that out of the total compensation 19.41$ that is around 70% of total wages are accounted for the work done while the remaining 30% of the compensation that is 8$ is in response to the benefits provided to the employees. For the state and local government employees the average compensation given out is 39.60$ and the total average wage rate throughout the USA comes up to around $29.37. Feldsten(2008) stated that the productivity in USA doubled from 1970 to 2006 and wages are also more or less increased with the same rate thus it shows a clear indication that the two are closely related to each other. On the other hand Becker and Huselid (ND) gave their tournament model for dependency of compensation per hour, in which they stated that compensation is closely linked with the incentives given out to the employee. It indicates that more the incentives given, more gets the productivity and thus increases the total compensation of the employee. Thus looking at the above research papers we draw out of the result that the real compensation in USA in both private and Government sector is broadly dependent on the unit labor cost that is the work done by an employee secondly on the productivity or say output of the person and lastly on the non worked incentives or the benefits given to the employees. Looking at the close link between the four we tried to find regression between the given variables. Data Source and Data Frequency The data of the variables for our project are downloaded from the website of Federal Reserve Bank of St Louis (www.research.stlouisfed.org). The data sets collected for our project are Real compensation per hour, Unit Labor cost, Unit non Labor payment and output per person. The data set duration varies from 1-1-1987 to 1-7-2012 and the data collected are grouped quarterly.