# Minimum wage Canonical: https://web4.xpay.bi/en/wiki/wp-en-18862/ Language: en Published: 2026-10-30T16:36:01.860Z Updated: 2026-10-30T16:36:01.860Z A minimum wage is the lowest remuneration that employers can legally pay their employees—the price floor below which employees may not sell their labor. Most countries had introduced minimum wage legislation by the end of the 20th century. Because minimum wages increase the cost of labor, companies often try to avoid minimum wage laws by using gig workers, by moving labor to locations wi ## Key facts ## Overview A minimum wage is the lowest remuneration that employers can legally pay their employees—the price floor below which employees may not sell their labor. Most countries had introduced minimum wage legislation by the end of the 20th century. Because minimum wages increase the cost of labor, companies often try to avoid minimum wage laws by using gig workers, by moving labor to locations with lower or nonexistent minimum wages, or by automating job functions. Minimum wage policies can vary significantly between countries or even within a country, with different regions, sectors, or age groups having their own minimum wage rates. These variations are often influenced by the cost of living, regional economic conditions, and industry-specific factors. The movement for minimum wages was initially motivated by a desire to stop the exploitation of workers in sweatshops by employers who were thought to have unfair bargaining power over them. Over time, minimum wages came to be seen as a way to help lower-income families. Modern national laws enforcing compulsory union membership and prescribing minimum wages for members were first passed in New Zealand in 1894. Although minimum wage laws are now in effect in many jurisdictions, differences of opinion exist about the benefits and drawbacks of a minimum wage. Additionally, minimum wage policies can be implemented in various ways, such as directly legislating specific wage rates, setting a formula to adjust the minimum wage based on economic indicators, or establishing wage boards that determine minimum wages in consultation with representatives of employers, employees, and the government. Because it acts as a price floor on labor, standard supply and demand models predict that minimum wages will lead to a surplus of labor (unemployment), particularly among low-skilled workers. However, they can increase labor market efficiency and employment in monopsony scenarios, where individual employers have some wage-setting power over the market as a whole. Supporters of the minimum wage say it increases the standard of living of workers, reduces poverty, reduces inequality, and boosts morale. In contrast, opponents of the minimum wage say it increases poverty and unemployment because some low-wage workers "will be unable to find work ... \[and\] will be pushed into the ranks of the unemployed". ## History Amongst the earliest minimum wages were introduced in Mesopotamia during the reign of Hammurabi, while in Ancient Egypt many workers received minimum wages in the form of rations. In addition, measures aimed at ensuring fair wages were carried out during the days of the Byzantine Empire and in early Islamic societies. In medieval England, the Ordinance of Labourers (1349), a decree by King Edward III, set a maximum wage for laborers in medieval England. Edward, who was a wealthy landowner, was dependent, like his lords, on serfs to work the land. In the autumn of 1348, the Black Plague reached England and decimated the population. The severe shortage of labor caused wages to soar and encouraged King Edward III to set a wage ceiling. Subsequent amendments to the ordinance, such as the Statute of Labourers (1351), increased the penalties for paying a wage above the set rates. While the laws governing wages initially set a ceiling on compensation, they were eventually used to set a living wage. An amendment to the Statute of Labourers in 1389 effectively fixed wages to the price of food. As time passed, the Justice of the Peace, who was charged with setting the maximum wage, also began to set formal minimum wages. The practice was eventually formalized with the passage of the Act Fixing a Minimum Wage in 1604 by King James I for workers in the textile industry. By the early 19th century, the Statutes of Labourers were repealed as the increasingly capitalistic United Kingdom embraced laissez-faire policies that disfavored wage regulation (whether upper or lower limits). The subsequent 19th century saw significant labor unrest affect many industrial nations. As trade unions were decriminalized during the century, attempts to control wages through collective agreement were made. It was not until the 1890s that the first modern legislative attempts to regulate minimum wages appeared in New Zealand and Australia. In 1896, the Australian state of Victoria introduced a Factory Act that established boards for setting minimum wages for people employed in industries known for sweating, such as meat, bread-making, furniture, and clothing. In Germany, a guaranteed minimum wage was introduced during the chancellorship of Leo von Caprivi. The movement for a minimum wage was initially focused on stopping sweatshop labor and curbing the proliferation of sweatshops in manufacturing industries. The sweatshops employed large numbers of women and young workers, paying them what were considered to be substandard wages. The sweatshop owners were thought to have unfair bargaining power over their employees, and a minimum wage was proposed to ensure fair pay. Over time, the focus changed to helping people, especially families, become more self-sufficient. In the United States, the late 19th-century ideas for favoring a minimum wage also coincided with the eugenics movement. As a consequence, some economists at the time, including Royal Meeker and Henry Rogers Seager, argued for the adoption of a minimum wage not only to support the worker, but to support their desired semi- and skilled laborers while forcing the undesired workers (including the idle, immigrants, women, racial minorities, and the disabled) out of the labor market. The result, over the longer term, would be to limit the nondesired workers' ability to earn money and have families, and thereby, remove them from the economists' ideal society. ## Minimum wage laws The first modern national minimum wages were enacted by the government recognition of unions which in turn established minimum wage policy among their members, as in New Zealand in 1894, followed by Australia in 1896 and the United Kingdom in 1909. In the United States, statutory minimum wages were first introduced nationally in 1938, and they were reintroduced and expanded in the United Kingdom in 1998. There is now legislation or binding collective bargaining regarding minimum wage in more than 90 percent of all countries. In the European Union, 21 out of 27 member states currently have national minimum wages. Other countries, such as Sweden, Finland, Denmark, Switzerland, Austria, and Italy, have no minimum wage laws, but rely on employer groups and trade unions to set minimum earnings through collective bargaining. Minimum wage rates vary greatly across many different jurisdictions, not only in setting a particular amount of money—for example $7.25 per hour ($14,500 per year) under certain US state laws (or $2.13 for employees who receive tips, which is known as the tipped minimum wage), $16.28 per hour in the U.S. state of Washington, or £11.44 (for those aged 21+) in the United Kingdom—but also in terms of which pay period (for example Russia and China set monthly minimum wages) or the scope of coverage. Currently, the United States federal minimum wage is $7.25 per hour, though most states have a higher minimum wage. However, some states do not have a minimum wage law, such as Louisiana and Tennessee, and others have minimum wages below the federal minimum, such as Georgia and Wyoming, although the federal minimum wage is enforced in those states. Some jurisdictions allow employers to count tips given to their workers as credit towards the minimum wage levels. India was one of the first developing countries to introduce minimum wage policy in its law in 1948. However, it is rarely implemented, even by contractors of government agencies. In Mumbai, as of 2017, the minimum wage was Rs. 348/day. India also has one of the most complicated systems with more than 1,200 minimum wage rates depending on the geographical region. ## Informal minimum wages Customs, tight labor markets, and extra-legal pressures from governments or labor unions can each produce a de facto minimum wage. So can international public opinion, by pressuring multinational companies to pay Third World workers wages usually found in more industrialized countries. The latter situation in Southeast Asia and Latin America was publicized in the 2000s, but it existed with companies in West Africa in the middle of the 20th century. ## Setting minimum wage Among the indicators that might be used to establish an initial minimum wage rate are ones that minimize the loss of jobs while preserving international competitiveness. Among these are general economic conditions as measured by real and nominal gross domestic product; inflation; labor supply and demand; wage levels, distribution and differentials; employment terms; productivity growth; labor costs; business operating costs; the number and trend of bankruptcies; economic freedom rankings; standards of living and the prevailing average wage rate. In the business sector, concerns include the expected increased cost of doing business, threats to profitability, rising levels of unemployment (and subsequent higher government expenditure on welfare benefits, raising tax rates), and the possible knock-on effects to the wages of more experienced workers who might already be earning the new statutory minimum wage, or slightly more. Other concerns include purchasing power, inflation indexing and standardized working hours. ## Impact of minimum wage on income inequality and poverty Minimum wage policies have been debated for their impact on income inequality and poverty levels. Proponents argue that raising the minimum wage can help reduce income disparities, enabling low-income workers to afford necessities and contribute to the overall economy. Higher minimum wages may also have a ripple effect, pushing up wages for those earning slightly above the minimum wage. However, opponents contend that minimum wage increases can lead to job losses, particularly for low-skilled and entry-level workers, as businesses may be unable to afford higher labor costs and may respond by cutting jobs or hours. They also argue that minimum wage increases may not effectively target those living in poverty, as many minimum wage earners are secondary earners in households with higher incomes. Some studies suggest that targeted income support programs, such as the Earned Income Tax Credit (EITC) in the United States, may be more effective in addressing poverty. A 2025 National Bureau of Economic Research (NBER) working paper estimates a 2.7–3.6% relative decline in California's fast-food employment compared to the rest of the U.S. from September 2023 to September 2024 following an increase in the state's minimum wage from $16 to $20 per hour. The median estimate is about 18,000 jobs that would have existed without the policy. Revised Bureau of Labor Statistics (BLS) data, analyzed in reports from Beacon Economics/Pepperdine (2025) and others, indicate job losses ranging from 10,000 to 23,000 in 2024, with California's sector declining by 3.2% while national fast-food employment grew slightly. The effectiveness of minimum wage policies in reducing income inequality and poverty remains a subject of ongoing debate and research. ## Supply and demand model According to the supply-and-demand model of the labor market shown in many economics textbooks, increasing the minimum wage decreases employment among minimum-wage workers. One such textbook states: If a higher minimum wage increases the wage rates of unskilled workers above the level that would be established by market forces, the quantity of unskilled workers employed will fall. The minimum wage will price the services of the least productive (and therefore lowest-wage) workers out of the market. ... the direct results of minimum wage legislation are clearly mixed. Some workers, most likely those whose previous wages were closest to the minimum, will enjoy higher wages. Others, particularly those with the lowest prelegislation wage rates, will be unable to find work. They will be pushed into the ranks of the unemployed. A firm's cost is an increasing function of the wage rate. The higher the wage rate, the fewer hours an employer will demand of employees. This is because, as the wage rate rises, it becomes more expensive for firms to hire workers and so firms hire fewer workers (or hire them for fewer hours). The demand of labor curve is therefore shown as a line moving down and to the right. Since higher wages increase the quantity supplied, the supply of labor curve is upward sloping; it is shown as a line moving up and to the right. If no minimum wage is in place, wages will adjust until the quantity of labor demanded is equal to quantity supplied, reaching equilibrium, where the supply and demand curves intersect. The minimum wage functions as a classical price floor on labor. Standard theory says that, if set above the equilibrium price, more labor will be willing to be provided by workers than will be demanded by employers, creating a surplus of labor, i.e., unemployment. The economic model of markets predicts the same of other commodities (like milk and wheat, for example): Artificially raising the price of the commodity tends to cause an increase in quantity supplied and a decrease in quantity demanded. The result is a surplus of the commodity. When there is a wheat surplus, the government buys it. Since the government does not hire surplus labor, the labor surplus takes the form of unemployment, which tends to be higher with minimum wage laws than without them. The supply and demand model implies that by mandating a price floor above the equilibrium wage, minimum wage laws will cause unemployment. This is because a greater number of people are willing to work at the higher wage, while a smaller number of jobs will be available at the higher wage. Companies can be more selective in whom they employ; thus, the least skilled and least experienced will typically be excluded. An increase in the minimum wage will generally affect employment only in the low-skill labor market, where the equilibrium wage is already at or below the minimum wage, whereas in higher-skill labor markets, the equilibrium wage is too high for a change in the minimum wage to affect employment. Classical liberal and libertarian economists have long emphasized this disemployment effect as a predictible consequence of government intervention in voluntary wage contracts. Milton Friedman described the minimum wage as "anti-black" because it disproportionately harms low-skilled minority workers by preventing them from competing on prices. Empirical patterns, including higher youth unemployment, reduced hours for teens, and substitution toward automation or offshoring, align with the model across decades of data. ## Monopsony The supply and demand model predicts that raising the minimum wage helps workers whose wages are raised, but hurts people who are not hired (or who lose their jobs) when companies cut back on employment. But proponents of the minimum wage hold that the situation is much more complicated than the model can account for. One complicating factor is the possibility of monopsony in the labor market, whereby the individual employer has some market power over wages. Thus, it is at least theoretically possible that the minimum wage may boost employment. Though single-employer market power is unlikely to exist in most labor markets in the sense of the traditional 'company town,' asymmetric information, imperfect mobility, and the personal element of the labor transaction give some degree of wage-setting power to most firms. Monopsony models predict that although an excessively high minimum wage may raise unemployment by setting the wage above the market-clearing level, a more reasonable minimum wage can increase employment and enhance growth and efficiency. This is because labor markets are monopsonistic and workers persistently lack bargaining power. Keynesian economics predict an increase in aggregate demand due to a minimum wage hike, because lower-income individuals who benefit from the minimum wage have a higher propensity to spend their income. This, in turn, should prompt companies to expand production to meet demand, resulting in hiring and increased employment. ## Criticisms of the supply and demand model The argument that a minimum wage decreases employment is based on a simple supply-and-demand model of the labor market. A number of economists, such as Pierangelo Garegnani, Robert L. Vienneau, and Arrigo Opocher and Ian Steedman, building on the work of Piero Sraffa, argue that the model, even given all its assumptions, is logically incoherent. Michael Anyadike-Danes and Wynne Godley argue, based on simulation results, that little of the empirical work done with the textbook model constitutes a potentially falsifiable theory, and consequently empirical evidence hardly exists for that model. Graham White argues, partially based on Sraffianism, that the policy of increased labor market flexibility, including the reduction of minimum wages, does not have an "intellectually coherent" argument in economic theory. Gary Fields, Professor of Labor Economics and Economics at Cornell University, argues that the standard textbook model for the minimum wage is ambiguous, and that the standard theoretical arguments incorrectly measure only a one-sector market. Fields says a two-sector market, where "the self-employed, service workers, and farm workers are typically excluded from minimum-wage coverage ... \[and with\] one sector with minimum-wage coverage and the other without it \[and possible mobility between the two\]," is the basis for better analysis. Through this model, Fields shows the typical theoretical argument to be ambiguous and says "the predictions derived from the textbook model definitely do not carry over to the two-sector case. Therefore, since a non-covered sector exists nearly everywhere, the predictions of the textbook model simply cannot be relied on." An alternative view of the labor market characterizes low-wage labor markets as monopsonistic competition, in which buyers (employers) have significantly more market power than sellers (workers). This monopsony could be a result of intentional collusion between employers, or naturalistic factors such as segmented markets, search costs, information costs, imperfect mobility, and the personal element of labor markets. Such a case is a type of market failure and results in workers being paid less than their marginal value. Under the monopsonistic assumption, an appropriately set minimum wage could increase both wages and employment, with the optimal level being equal to the marginal product of labor. This view emphasizes the role of minimum wages as a market regulation policy akin to antitrust policies, as opposed to an illusory "free lunch" for low-wage workers. Another reason minimum wage may not affect employment in certain industries is that the demand for the product the employees produce is highly inelastic. For example, if management is forced to increase wages, management can pass on the increase in wage to consumers in the form of higher prices. Since demand for the product is highly inelastic, consumers continue to buy it at the higher price, so the manager is not forced to lay off workers. Economist Paul Krugman argues this explanation neglects to explain why the firm was not charging this higher price absent the minimum wage. Three other possible reasons minimum wages do not affect employment were suggested by Alan Blinder: higher wages may reduce turnover, and hence training costs; raising the minimum wage may "render moot" the potential problem of recruiting workers at a higher wage than current workers; and minimum wage workers might represent such a small proportion of a business' cost that the increase is too small to matter. He admits that he does not know if these are correct, but argues that "the list demonstrates that one can accept the new empirical findings and still be a card-carrying economist". ## Mathematical models of the minimum wage and frictional labor markets The following mathematical models are more quantitative in orientation and highlight some of the difficulties in determining the impact of the minimum wage on labor market outcomes. Specifically, these models focus on labor markets with frictions. They may result in positive or negative outcomes from raising the minimum wage, depending on the circumstances. ## Welfare and labor market participation Assume that the decision to participate in the labor market results from a trade-off between being an unemployed job seeker and not participating at all. All individuals whose expected utility outside the labor market is less than the expected utility of an unemployed person V u \{\\displaystyle V\_\{u\}\} decide to participate in the labor market. In the basic search and matching model, the expected utility of unemployed persons V u \{\\displaystyle V\_\{u\}\} and that of employed persons V e \{\\displaystyle V\_\{e\}\} are defined by: r V e = w + q ( V u − ## Job search effort In the model just presented, the minimum wage always increases unemployment. This result does not necessarily hold when workers' search effort is endogenous. Consider a model where the intensity of the job search is designated by the scalar ϵ \{\\displaystyle \\epsilon \} , which can be interpreted as the amount of time and/or intensity of the effort devoted to search. Assume that the arrival rate of job offers is α ϵ \{\\displaystyle \\alpha \\epsilon \} and that the wage distribution is degenerated to a single wage w \{\\displaystyle w\} . Denote φ ( ϵ ) \{\\displaystyle \\varphi (\\epsilon )\} to be the cost arising from the search effort, with φ ′ \> 0 , φ ″ \> 0 \{\\displaystyle \\varphi '\>0,\\;\\varphi ''\>0\} . Then the discounted utilities are given by: r ## Sources - Minimum wage · Wikipedia: https://en.wikipedia.org/?curid=18862 Source: Wikipedia contributors — https://en.wikipedia.org/?curid=18862&oldid=1382765925 Licence: CC BY-SA 4.0 — https://creativecommons.org/licenses/by-sa/4.0/ Adaptation notice: Reformatted for XPay; the source may be abridged, restructured or translated. Consult the cited revision for the original.