Minimum Wage

DEFINITION of 'Minimum Wage'

The minimum amount of compensation an employee must receive for performing labor. Minimum wages are typically established by contract or legislation by the government. As such, it is illegal to pay an employee less than the minimum wage.

BREAKING DOWN 'Minimum Wage'

The minimum wage attempts to protect employees from exploitation, allowing them to afford the basic necessities of life. The minimum wage rate fluctuates between countries, and sometimes between states or provinces.

Minimum wages have drawn strong criticism from many economists, since it establishes a price floor on wages. Price floors can lead to a dead weight loss in the economy, which means that inefficiencies exist. In this case, the minimum wage might force companies to hire fewer employees, thus increasing unemployment.

As of July 2008, the U.S. federal minimum wage rate was $6.55/hour. However, in states where the state minimum wage is higher than the U.S. federal minimum wage, workers must be paid the higher minimum wage.

RELATED TERMS
  1. Sticky Wage Theory

    An economic hypothesis theorizing that pay of employees tends ...
  2. Floor

    The lowest acceptable limit as restricted by controlling parties. ...
  3. Frictional Unemployment

    Unemployment that is always present in the economy, resulting ...
  4. Deadweight Loss

    The costs to society created by market inefficiency. Mainly used ...
  5. Microeconomics

    The branch of economics that analyzes the market behavior of ...
  6. Green Economics

    Green economic theories encompass a wide range of ideas all dealing ...
Related Articles
  1. Stock Analysis

    What the Recent Minimum Wage Debate Means for McDonald’s Stock Price (MCD)

    Find out what effect a minimum wage increase will have on McDonald's stock price. Examine the results of the increase in McDonald's minimum wage.
  2. Professionals

    Is Selling Life Insurance the Right Career For You?

    Learn why life insurance sales is a difficult career in which most people do not succeed, and understand what traits it takes to be successful.
  3. Economics

    America's Poorest States in 2015

    Learn the reasons Mississippi, New Mexico, Louisiana, Georgia and Kentucky are the poorest states in the United States, as of 2015.
  4. Economics

    Minimum Wages Can Raise Unemployment

    Learn why many economists feel that minimum wages, while intended to benefit low-wage workers, actually hurt them by increasing unemployment.
  5. Economics

    The Top 5 US Cities with Highest Minimum Wage

    Learn how awareness campaigns have led to huge minimum wage hikes in several large cities, and discover which U.S. cities have the highest minimum wages.
  6. Economics

    Economics Basics

    Learn economics principles such as the relationship of supply and demand, elasticity, utility, and more!
  7. Insurance

    The Minimum Wage: Does It Matter?

    Despite paying one of the highest minimum wages in the world, the minimum wage is a perpetual hot potato among politicians in the United States.
  8. Retirement

    Economic Indicators To Know

    The economy has a large impact on the market. Learn how to interpret the most important reports.
  9. Economics

    Economist Guide: 5 Lessons Milton Friedman Teaches Us

    Find out what can still be learned from the late economist Milton Friedman, a Nobel prize winner and champion of free market economics.
  10. Economics

    Economist Guide: 3 Lessons Karl Marx Teaches Us

    Read about three lessons that modern economic thinkers can learn from German philosopher Karl Marx, the founding father of communism.
RELATED FAQS
  1. What are the primary risks an investor should consider when investing in the retail ...

    The retail sector consists of companies operating in multiple industries such as specialty retail, general retail, food and ... Read Full Answer >>
  2. What external factors can influence EBITDA margins?

    Companies often experience changes in their earnings before interest, taxes, depreciation and amortization (EBITDA) margins ... Read Full Answer >>
  3. Does raising the minimum wage increase inflation?

    There are conflicting views on whether raising the minimum wage increases inflation. Tied to this is the question of what ... Read Full Answer >>
  4. Which states have the lowest minimum wage?

    As of January, 2015, Georgia and Wyoming have the lowest state minimum wage requirements, according to data from the U.S. ... Read Full Answer >>
  5. Will a hike in the minimum wage result in deadweight loss to businesses and labor?

    There have been studies which show that hikes in minimum wage create deadweight loss to business and labor. It is possible ... Read Full Answer >>
  6. How much money can Uber drivers make?

    According to the company’s own data released in May 2014, more than half of the Uber drivers operating in New York City earn ... Read Full Answer >>
  7. Do minimum wage laws make labor a fixed or variable cost?

    Labor is a semi-variable cost. Semi-variable costs have elements of variable costs and fixed costs. Variable costs vary with ... Read Full Answer >>
Hot Definitions
  1. Short Selling

    Short selling is the sale of a security that is not owned by the seller, or that the seller has borrowed. Short selling is ...
  2. Harry Potter Stock Index

    A collection of stocks from companies related to the "Harry Potter" series franchise. Created by StockPickr, this index seeks ...
  3. Liquidation Margin

    Liquidation margin refers to the value of all of the equity positions in a margin account. If an investor or trader holds ...
  4. Black Swan

    An event or occurrence that deviates beyond what is normally expected of a situation and that would be extremely difficult ...
  5. Inverted Yield Curve

    An interest rate environment in which long-term debt instruments have a lower yield than short-term debt instruments of the ...
  6. Socially Responsible Investment - SRI

    An investment that is considered socially responsible because of the nature of the business the company conducts. Common ...
Trading Center