Minimum Wage

Minimum Wage, the rate of pay fixed either by a collective bargaining agreement or by governmental enactment as the lowest wage payable to specified categories of employees. In general, the setting of a minimum wage does not preclude the right of employees to demand wages above the established minimum. The method of establishing a minimum wage by collective bargaining suffers from a serious limitation, however, because collective bargaining agreements cover only the workers in a specific plant, craft, industry, or local area, and hence are inadequate in situations in which wage rates prevailing throughout an entire nation have fallen to excessively low levels. The realization of this shortcoming led trade unions to demand government minimum wage programmes in several countries as early as the 1890s and resulted in the enactment of legislation setting minimum wages across a range of occupations.

The first minimum wage law was enacted by the government of New Zealand in 1894. A subsequent law enacted by Victoria State, Australia, in 1896 established wage boards on which workers and employers were represented in equal numbers, with power to fix minimum wages enforceable on the employer. This innovative law served as the model for the British Trade Boards Act of 1909. In the United States, Massachusetts enacted minimum wage law in 1912, and eight other states followed suit the next year. Whereas the laws passed in Australia and Great Britain applied to all workers in particular occupations, the US laws at first were applicable only to women and children.

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Many countries today have national minimum wages, and more still have minimum wages for certain occupations. The United Kingdom was one of the few countries in the late 20th century to resist the introduction of a national minimum wage, but it was finally introduced in 1999 and set at a rate of £3.60 per hour for all workers aged over 22 and £3.00 for workers aged between 18 and 21. By October 2007 it had risen to £5.52 (£4.60 for those aged 18 to 21, £3.40 for those aged 16 and 17) and in October 2008 it was to rise to £5.73 (£4.77 for 18- to 21-year-olds, £3.53 for 16- and 17-year-olds). Comparable rates across the world, in early 2008, include A$13.74 (£6.30) in Australia; NZ$12 (£4.78) in New Zealand; and US$5.85 (£2.92) in the United States, although the minimum wage can vary above this rate from state to state.

The main concern with minimum wage legislation is that it will hurt those it is designed to protect, by reducing the number of low-skilled jobs. Critics point to the plentiful labour force in the developing world and fear that minimum wage legislation will result in further increases in unemployment in developed countries. However, the evidence is mixed on the exact impact of minimum wage legislation. Studies in the United States done in the 1990s, for example, give contradictory results on the impact; much depends on the economic strength of the companies forced to pay a higher wage and thus their ability to remain competitive.