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How are minimum wages set through wage councils or government laws?
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Labour law
Diorite stela inscribed with the Code of Hammurabi, 18th century bce.
Governments typically intervene to set minimum wages through three primary methods within the framework of labour law:
- Statutory Regulation: Governments may specify by law the actual minimum wage applicable to broad categories of employment, such as the Fair Labor Standards Act in the United States.1
- Wage Boards: Authorities may establish boards composed of worker and employer representatives, along with independent members. These boards negotiate and determine legally binding rates of pay and hours for specific industries. If the parties fail to reach an agreement, the independent members cast the deciding vote.1
- Extension of Collective Bargaining: Governments may mandate that the terms and conditions established through collective bargaining for a specific group of workers be applied to all other employees performing the same type of work.1
In some regions, such as parts of the European Union, minimum earnings are established directly through the collective bargaining process between trade unions and employer groups rather than through direct government legislation.2