Minimum Wage

AAA

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 that the pay of employed workers tends ...
  2. Frictional Unemployment

    Unemployment that is always present in the economy, resulting ...
  3. Microeconomics

    The branch of economics that analyzes the market behavior of ...
  4. Deadweight Loss

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

    The lowest acceptable limit as restricted by controlling parties. ...
  6. Corporate Social Responsibility

    Corporate initiative to assess and take responsibility for the ...
Related Articles
  1. 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.
  2. 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.
  3. 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.
  4. Economics

    Economics Basics

    Learn economics principles such as the relationship of supply and demand, elasticity, utility, and more!
  5. 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.
  6. Retirement

    Economic Indicators To Know

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

    Understanding Organic Growth

    Organic growth is the increase in a company’s revenue and value due to internal operations.
  8. Economics

    Explaining Market Penetration

    Market penetration is the measure of how much a good or service is being used within a total potential market.
  9. Economics

    Calculating the Marginal Rate of Substitution

    The marginal rate of substitution determines how much of one good a consumer will give up to obtain extra units of another good.
  10. Economics

    Understanding Cost of Revenue

    The cost of revenue is the total costs a business incurs to manufacture and deliver a product or service.
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 >>

You May Also Like

Hot Definitions
  1. Bear Market

    A market condition in which the prices of securities are falling, and widespread pessimism causes the negative sentiment ...
  2. Alligator Spread

    An unprofitable spread that occurs as a result of large commissions charged on the transaction, regardless of favorable market ...
  3. Tiger Cub Economies

    The four Southeast Asian economies of Indonesia, Malaysia, the Philippines and Thailand. Tiger cub economy indicates that ...
  4. Gorilla

    A company that dominates an industry without having a complete monopoly. A gorilla firm has large control of the pricing ...
  5. Elephants

    Slang for large institutions that have the funds to make high volumes trades. Due to the large volumes of stock that elephants ...
  6. Widow's Exemption

    In general terms, a widow's exemption refers to the amount that can be deducted from taxable income by a widow, thereby reducing ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!