Minimum Wage

Minimum wage is the lowest hourly rate of payment that an employer can pay to employees. Concerned regulatory authorities of a nation normally set this minimum wage limit. In the US, it is as per instructions mandated by federal law. In the UK, concerned wage council of industries set respective minimum wages. Thus in simple terms minimum wage is that minimum compensatory amount, which a labourer (employee) must receive for his efforts (labour). Government legislation or contracts normally set this minimum wage. Hence any wage, which is less than stipulated minimum wage of a country/sector, is illegal. Concept of minimum wages has been evolved in an attempt to protect employee interests. Often there exist differentials in minimum wages between nations or even provinces. As per July 2008 data, the U.S. federal minimum wage stood at $6.55/hour. However in areas where state minimum wage rate was greater than U.S. federal minimum wage rate workers were entitled to receive higher of two. Some economists have strongly criticized the concept of minimum wages, as they tend to establish a price floor as regards wages. Deadweight loss is often associated with a price floor. This points towards the existence of economic inefficiencies. They argue that the existence of minimum wages may, in reality, lead to unemployment as companies may lower the rate of hiring of workers.

Critiques of minimum wage theory argue that pushing up of minimum wages have following negative effects.

1. It adversely affects small business enterprises
2. It leads to unemployment
3. It squeezes profit margin
4. It increases and hence the price of goods

Those in favour of minimum wage legislation state that this alleviates poverty of working-class people, augment the income of low-income families and leads to a reduction in income inequality of a nation in the process. Apart from this, minimum wage principle is also regarded as a populist measure.

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