minimum wage

Minimum wage laws and collective bargaining agreements establish the lowest hourly pay workers can receive, setting a wage floor that influences earnings, business costs, and economic policy. Rates may be defined by amount, time period (hourly, weekly, monthly), and scope of coverage. For example, employers may be allowed to count tips received by employees as credits toward the mandated minimum-wage level.

The modern minimum wage, combined with compulsory arbitration of labor disputes, first appeared in Australia and New Zealand in the 1890s. In 1909 Great Britain established trade boards to set minimum-wage rates in certain trades and industries. In the United States the first minimum-wage law, enacted by the state of Massachusetts in 1912, covered only women and children; the first statutory laws were introduced nationally in 1938. The intent of these laws was to shorten hours and raise pay in the covered industries.

Minimum-wage legislation now exists in more than 90 percent of all countries, although the laws vary greatly. For example, in the United States the vast majority of individual states have minimum-wage legislation in addition to a set federal minimum wage. In the European Union (EU) most member states have national minimum wages; those that do not rely on trade unions and employer groups to establish minimum earnings through the collective bargaining process. The minimum-wage rate in Argentina is set by collective agreement by the National Council for Employment, Productivity and the Minimum Wage (Salario Mínimo Vital y Móvil)—often abbreviated SMVM—which includes an equal number of government, employer, and worker representatives.

Despite differing legislation, however, minimum-wage rates are generally set at higher-than-average levels in developing countries than they are in developed countries and the EU. Countries that deviate from this trend include those of the Commonwealth of Independent States (CIS) and southeastern Europe.

Supporters of minimum-wage laws maintain that they enhance the work ethic and increase the standard of living of workers and that they decrease the cost of social welfare programs and protect workers against exploitation at the hands of their employers. Opponents argue that minimum-wage laws hurt small businesses that are unable to absorb the costs of higher payrolls, increase unemployment by forcing employers to cut back on hiring, decrease education by encouraging citizens to enter the workforce, and result in outsourcing and inflation as businesses are forced to compensate for rising operating costs.

Existing or proposed alternatives to minimum-wage laws include Earned Income Tax Credit (EITC) programs, which aid low-wage earners through decreased taxes and tax refunds, and an unconditional social-security system known as basic income, which periodically provides citizens with a lump sum of money.