While the laws governing wages initially set a ceiling on compensation, they were eventually used to set a living wage. An amendment to the Statute of Labourers in 1389 effectively fixed wages to the price of food. As time passed, the Justice of the Peace, who was charged with setting the maximum wage, also began to set formal minimum wages. The practice was eventually formalized with the passage of the Act Fixing a Minimum Wage in 1604 by King James I for workers in the textile industry.
The first modern national minimum wages were enacted by the government recognition of unions which in turn established minimum wage policy among their members, as in New Zealand in 1894, followed by Australia in 1896 and the United Kingdom in 1909. In the United States, statutory minimum wages were first introduced nationally in 1938, and they were reintroduced and expanded in the United Kingdom in 1998. There is now legislation or binding collective bargaining regarding minimum wage in more than 90 percent of all countries. In the European Union, 21 out of 27 member states currently have national minimum wages. Other countries, such as Sweden, Finland, Denmark, Switzerland, Austria, and Italy, have no minimum wage laws, but rely on employer groups and trade unions to set minimum earnings through collective bargaining.
The movement for minimum wages was first motivated as a way to stop the exploitation of workers in sweatshops, by employers who were thought to have unfair bargaining power over them. Over time, minimum wages came to be seen as a way to help lower-income families. Modern national laws enforcing compulsory union membership which prescribed minimum wages for their members were first passed in New Zealand in 1894. Although minimum wage laws are now in effect in many jurisdictions, differences of opinion exist about the benefits and drawbacks of a minimum wage. Additionally, minimum wage policies can be implemented through various methods, such as directly legislating specific wage rates, setting a formula that adjusts the minimum wage based on economic indicators, or having wage boards that determine minimum wages in consultation with representatives from employers, employees, and the government.
Winston Churchill MP, Trade Boards Bill, Hansard House of Commons (28 April 1909) vol 4, col 388
In the United States, the minimum wage is set by U.S. labor law and a range of state and local laws. The first federal minimum wage was instituted in the National Industrial Recovery Act of 1933, signed into law by President Franklin D. Roosevelt, but later found to be unconstitutional. In 1938, the Fair Labor Standards Act established it at 25¢ an hour ($5.41 in 2023). Its purchasing power peaked in 1968, at $1.60 ($14.00 in 2023) In 2009, it was increased to $7.25 per hour, and has not been increased since.
Minimum wage rates vary greatly across many different jurisdictions, not only in setting a particular amount of money—for example $7.25 per hour ($14,500 per year) under certain US state laws (or $2.13 for employees who receive tips, which is known as the tipped minimum wage), $16.28 per hour in the U.S. state of Washington, or £8.91 (for those aged 25+) in the United Kingdom —but also in terms of which pay period (for example Russia and China set monthly minimum wages) or the scope of coverage. Currently the United States federal minimum wage is $7.25 per hour, though most states have a higher minimum wage. However, some states do not have a minimum wage law, such as Louisiana and Tennessee, and other states have minimum wages below the federal minimum wage such as Georgia and Wyoming, although the federal minimum wage is enforced in those states. Some jurisdictions allow employers to count tips given to their workers as credit towards the minimum wage levels. India was one of the first developing countries to introduce minimum wage policy in its law in 1948. However, it is rarely implemented, even by contractors of government agencies. In Mumbai, as of 2017, the minimum wage was Rs. 348/day. India also has one of the most complicated systems with more than 1,200 minimum wage rates depending on the geographical region.
A widely circulated argument that the minimum wage was ineffective at reducing poverty was provided by George Stigler in 1949:
The minimum wage was introduced in Spain in 1963 through Decree 55/1963, proposed by Jesús Romeo Gorría, the Minister of Labor during Francisco Franco's IX Government. The purpose was to ensure fair remuneration for all workers, adjusting wages to labor and economic conditions and advocating for salary equity. It was set at 1,800 pesetas/month (25,200 pesetas/year, 12 monthly payments plus 2 extra payments, as its customary in Spain as to this day), equivalent to 10.80 euros at the time but only 400 euros in today's prices.
In the years following Franco's death in 1975, the minimum wage gradually increased, reaching 50.49 euros (8,400 pesetas) that year, which is equivalent to 657.23 euros in today's currency. Over the years, the minimum wage continued to rise, with several revisions along the way. In 2022, the Spanish government set the minimum wage at 33.33 euros per day or 1,000 euros per month, effective from January 1. This represents a 47% increase from the previous minimum wage set in 2018 at 735.90 euros.
Until the mid-1990s, a general consensus existed among economists–both conservative and liberal–that the minimum wage reduced employment, especially among younger and low-skill workers. In addition to the basic supply-demand intuition, there were a number of empirical studies that supported this view. For example, Edward Gramlich in 1976 found that many of the benefits went to higher income families, and that teenagers were made worse off by the unemployment associated with the minimum wage.
In the United States, earned income tax credit rates, also known as EITC or EIC, vary by state—some are refundable while other states do not allow a refundable tax credit. The federal EITC program has been expanded by a number of presidents including Jimmy Carter, Ronald Reagan, George H.W. Bush, and Bill Clinton. In 1986, President Reagan described the EITC as "the best anti poverty, the best pro-family, the best job creation measure to come out of Congress." The ability of the earned income tax credit to deliver larger monetary benefits to the poor workers than an increase in the minimum wage and at a lower cost to society was documented in a 2007 report by the Congressional Budget Office.
The South Korean government enacted the Minimum Wage Act on December 31, 1986. The Minimum Wage System began on January 1, 1988. At this time the economy was booming, and the minimum wage set by the government was less than 30 percent of that of real workers. The Minister of Employment and Labor in Korea asks the Minimum Wage Commission to review the minimum wage by March 31 every year. The Minimum Wage Commission must submit the minimum wage bill within 90 days after the request has been received by the 27 committee members. If there is no objection, the new minimum wage will then take effect from January 1. The minimum wage committee decided to raise the minimum wage in 2018 by 16.4% from the previous year to 7,530 won (US$7.03) per hour. This is the largest increase since 2001 when it was increased by 16.8%.
In 1992, the minimum wage in New Jersey increased from $4.25 to $5.05 per hour (an 18.8% increase), while in the adjacent state of Pennsylvania it remained at $4.25. David Card and Alan Krueger gathered information on fast food restaurants in New Jersey and eastern Pennsylvania in an attempt to see what effect this increase had on employment within New Jersey. A basic supply and demand model predicts that relative employment should have decreased in New Jersey. Card and Krueger surveyed employers before the April 1992 New Jersey increase, and again in November–December 1992, asking managers for data on the full-time equivalent staff level of their restaurants both times. Based on data from the employers' responses, the authors concluded that the increase in the minimum wage slightly increased employment in the New Jersey restaurants.
Publication bias amongst meta-analyses: In 1995, Card and Krueger analyzed 14 earlier time-series studies on minimum wages and concluded that there was clear evidence of publication bias (in favor of studies that found a statistically significant negative employment effect). They point out that later studies, which had more data and lower standard errors, did not show the expected increase in t-statistic (almost all the studies had a t-statistic of about two, just above the level of statistical significance at the .05 level). Though a serious methodological indictment, opponents of the minimum wage largely ignored this issue; as Thomas Leonard noted, "The silence is fairly deafening." In 2005, T.D. Stanley showed that Card's and Krueger's results could signify either publication bias or the absence of a minimum wage effect. However, using a different methodology, Stanley concluded that there is evidence of publication bias and that correction of this bias shows no relationship between the minimum wage and unemployment. In 2008, Hristos Doucouliagos and T.D. Stanley conducted a similar meta-analysis of 64 U.S. studies on disemployment effects and concluded that Card and Krueger's initial claim of publication bias is still correct. Moreover, they concluded, "Once this publication selection is corrected, little or no evidence of a negative association between minimum wages and employment remains."
The concept of the national minimum wage emerged in Armenia in 1995. Since then, it has been increasing, on average, every couple of years. The longest unchanged streak of the national minimum wage was between 1999 and 2003, when it was set at 5,000 AMD, and between 2015 and 2019 where it was set at 55,000 AMD. In November 2022, the national minimum wage was subject to the latest increase. It was set at 75,000 AMD.
In 1996 and 1997, the federal minimum wage was increased from $4.25 to $5.15, thereby increasing the minimum wage by $0.90 in Pennsylvania but by just $0.10 in New Jersey; this allowed for an examination of the effects of minimum wage increases in the same area, subsequent to the 1992 change studied by Card and Krueger. A study by Hoffman and Trace found the result anticipated by traditional theory: a detrimental effect on employment.
In 1996, David Neumark and William Wascher reexamined Card's and Krueger's results using administrative payroll records from a sample of large fast food restaurant chains, and reported that minimum wage increases were followed by decreases in employment. An assessment of data collected and analyzed by Neumark and Wascher did not initially contradict the Card and Krueger results, but in a later edited version they found a four percent decrease in employment, and reported that "the estimated disemployment effects in the payroll data are often statistically significant at the 5- or 10-percent level although there are some estimators and subsamples that yield insignificant—although almost always negative" employment effects. Neumark and Wascher's conclusions were subsequently rebutted in a 2000 paper by Card and Krueger.
Although strongly opposed by both the business community and the Conservative Party when introduced in the UK in 1999, the Conservatives reversed their opposition in 2000. Accounts differ as to the effects of the minimum wage. The Centre for Economic Performance found no discernible impact on employment levels from the wage increases, while the Low Pay Commission found that employers had reduced their rate of hiring and employee hours employed, and found ways to cause current workers to be more productive (especially service companies). The Institute for the Study of Labor found prices in minimum wage sectors rose faster than other sectors, especially in the four years after its introduction. Neither trade unions nor employer organizations contest the minimum wage, although the latter had especially done so heavily until 1999.
As of April 2000, the government introduced a national minimum wage of €5.58 per hour. The minimum wage increased regularly in the period from 2000 to 2007 and reached €8.65 per hour in July 2007. As the global economic downturn hit the country in 2008, there was no further wage increases until 2016 when the minimum wage was increased to 9.15.
The national minimum wage was introduced in the Republic of Ireland in April 2000. Prior to this, minimum wages were set by industry-specific Joint Labour Committees. However, coverage for workers was low and the agreements were poorly enforced and moreover, those who were covered by agreements received low wages.
Some research suggests that the unemployment effects of small minimum wage increases are dominated by other factors. In Florida, where voters approved an increase in 2004, a follow-up comprehensive study after the increase confirmed a strong economy with increased employment above previous years in Florida and better than in the US as a whole. When it comes to on-the-job training, some believe the increase in wages is taken out of training expenses. A 2001 empirical study found that there is "no evidence that minimum wages reduce training, and little evidence that they tend to increase training."
A similar survey in 2006 by Robert Whaples polled PhD members of the American Economic Association (AEA). Whaples found that 47% respondents wanted the minimum wage eliminated, 38% supported an increase, 14% wanted it kept at the current level, and 1% wanted it decreased. Another survey in 2007 conducted by the University of New Hampshire Survey Center found that 73% of labor economists surveyed in the United States believed 150% of the then-current minimum wage would result in employment losses and 68% believed a mandated minimum wage would cause an increase in hiring of workers with greater skills. 31% felt that no hiring changes would result.
In 2006, the International Labour Organization (ILO) argued that the minimum wage could not be directly linked to unemployment in countries that have suffered job losses. In April 2010, the Organisation for Economic Co-operation and Development (OECD) released a report arguing that countries could alleviate teen unemployment by "lowering the cost of employing low-skilled youth" through a sub-minimum training wage. A study of U.S. states showed that businesses' annual and average payrolls grow faster and employment grew at a faster rate in states with a minimum wage. The study showed a correlation, but did not claim to prove causation.
In 2007, Klein and Dompe conducted a non-anonymous survey of supporters of the minimum wage who had signed the "Raise the Minimum Wage" statement published by the Economic Policy Institute. 95 of the 605 signatories responded. They found that a majority signed on the grounds that it transferred income from employers to workers, or equalized bargaining power between them in the labor market. In addition, a majority considered disemployment to be a moderate potential drawback to the increase they supported.
In 2013, a diverse group of 37 economics professors was surveyed on their view of the minimum wage's impact on employment. 34% of respondents agreed with the statement, "Raising the federal minimum wage to $9 per hour would make it noticeably harder for low-skilled workers to find employment." 32% disagreed and the remaining respondents were uncertain or had no opinion on the question. 47% agreed with the statement, "The distortionary costs of raising the federal minimum wage to $9 per hour and indexing it to inflation are sufficiently small compared with the benefits to low-skilled workers who can find employment that this would be a desirable policy", while 11% disagreed.
In 2013, a meta-analysis of 16 UK studies found no significant effects on employment attributable to the minimum wage.
The Economist wrote in December 2013: "A minimum wage, providing it is not set too high, could thus boost pay with no ill effects on jobs....America's federal minimum wage, at 38% of median income, is one of the rich world's lowest. Some studies find no harm to employment from federal or state minimum wages, others see a small one, but none finds any serious damage. ... High minimum wages, however, particularly in rigid labour markets, do appear to hit employment. France has the rich world's highest wage floor, at more than 60% of the median for adults and a far bigger fraction of the typical wage for the young. This helps explain why France also has shockingly high rates of youth unemployment: 26% for 15- to 24-year-olds."
In 2014, in Seattle, Washington, liberal and progressive business owners who had supported the city's new $15 minimum wage said they might hold off on expanding their businesses and thus creating new jobs, due to the uncertain timescale of the wage increase implementation. However, subsequently at least two of the business owners quoted did expand.
In 2014, supporters of minimum wage cited a study that found that job creation within the United States is faster in states that raised their minimum wages. In 2014, supporters of minimum wage cited news organizations who reported the state with the highest minimum-wage garnered more job creation than the rest of the United States.
With regard to the economic effects of introducing minimum wage legislation in Germany in January 2015, recent developments have shown that the feared increase in unemployment has not materialized, however, in some economic sectors and regions of the country, it came to a decline in job opportunities particularly for temporary and part-time workers, and some low-wage jobs have disappeared entirely. Because of this overall positive development, the Deutsche Bundesbank revised its opinion, and ascertained that "the impact of the introduction of the minimum wage on the total volume of work appears to be very limited in the present business cycle".
The Expert panel conducts yearly wage reviews, to determine if the minimum wage needs to be adjusted based on the economy's current and projected performance. The annual minimum wage review decisions in 2016–17 found, based on research tendered and submissions to the review, that moderate increases to minimum wages do not inhibit workplace participation or result in disemployment. This position was carried over to the 2017–18 and 2018–19 decisions and informed the decisions including the 2018–19 decision which delivered a minimum wage increase of 3% when the corresponding headline rate of inflation was 1.3%. In the annual minimum wage review decisions of 2019–20 and 2020–21, the FWC was considerably more constrained in setting minimum wages due to uncertain economic conditions during the COVID-19 pandemic and the 2020–21 decision noted the uncertainty of the impact of increases in the minimum wages for youth employment.
In response to an April 2016 Council of Economic Advisers (CEA) report advocating the raising of the minimum wage to deter crime, economists used data from the 1998–2016 Uniform Crime Reports (UCR), National Incident-Based Reporting System (NIBRS), and National Longitudinal Study of Youth (NLSY) to assess the impact of the minimum wage on crime. They found that increasing the minimum wage resulted in increased property crime arrests among those ages 16 to 24. They estimated that an increase of the Federal minimum wage to $15/hour would "generate criminal externality costs of nearly $2.4 billion."
According to the 2021 study "The Effects of Minimum Wage on Employment: New Evidences for Spain" by the Bank of Spain, the sudden increase of minimum wage in Spain in 2019 by 22% (from 860 EUR/month, to 1050 EUR/month, projected to 12 annual payments) destroyed between 98,000 and 180,000 jobs, which corresponds to between 6% and 11% of jobs remunerated at minimum wage.
Finally, a study by Overstreet in 2019 examined increases to the minimum wage in Arizona. Utilizing data spanning from 1976 to 2017, Overstreet found that a 1% increase in the minimum wage was significantly correlated with a 1.13% increase in per capita income in Arizona. This study could show that smaller increases in minimum wage may not distort labor market as significantly as larger increases experienced in other cities and states. Thus, the small increases experienced in Arizona may have actually led to a slight increase in economic growth.
For instance, an analysis conducted by BCE (Central Bank of Spain, by its initials in spanish) in 2019 on the impact of the 2017 increase in the minimum wage showed a negative effect on the probability of maintaining employment among affected workers, which was particularly significant for older workers.
In 2019, economists from the Georgia Institute of Technology published a study that found a strong correlation between increases to the minimum wage and detectable harm to the financial conditions of small businesses, including a higher rate of bankruptcy, lower hiring rates, lower credit scores, and higher interest payments. The researchers noted that these small businesses were also correlated with minority ownership and minority customer bases.
Employers have to pay workers the highest minimum wage of those prescribed by federal, state, and local laws. In August 2022, 30 states and the District of Columbia had minimum wages higher than the federal minimum. In January 2020, almost 90% of Americans earning just minimum wage got more than $7.25 an hour. The effective nationwide minimum wage (the wage that the average minimum-wage worker earns) was $11.80 in May 2019; this was the highest it had been since at least 1994, the earliest year for which effective-minimum-wage data are available.
In July 2019, the United States Congressional Budget Office published the impact on proposed national $15 per hour legislation. It noted that workers who retained full employment would see a modest improvement in take home pay offset by a small decrease in working conditions and non-pecuniary benefits. However, this benefit is offset by three primary factors; the reduction in hours worked, the reduction in total employment, and the increased cost of goods and services. Those factors result in a decrease of about $33 billion in total income and nearly 1.7–3.7 million lost jobs in the first three years (the CBO also noted this figure increases over time).
After two years of constant financial meltdown, Lebanon as of 2021 is ranking as one of the 10 countries in the world with the lowest minimum wages because of the collapse of the local pound following the Lebanese financial crisis that started in August 2019.
In 2021, the Congressional Budget Office estimated that incrementally raising the federal minimum wage to $15 an hour by 2025 would benefit 17 million workers but would also reduce employment by 1.4 million people. It would also lift about 900,000 people out of poverty and might raise wages for 10 million more workers, cause prices to rise and overall economic output to decrease slightly, and increase the federal budget deficit by $54 billion over the next 10 years. An Ipsos survey in August 2020 found that support for a rise in the federal minimum wage had grown substantially during the ongoing COVID-19 pandemic, with 72% of Americans in favor, including 62% of Republicans and 87% of Democrats. A March 2021 poll by Monmouth University Polling Institute, conducted as a minimum-wage increase was being considered in Congress, found 53% of respondents supporting an increase to $15 an hour and 45% opposed.
As of 1 January 2022, the minimum wage is €10.50. Those aged 20 and over are eligible to receive 100 percent of the minimum wage. Those under the age of 18 are eligible to receive 70 percent of the minimum wage, those aged 18 are eligible to receive 80 percent of the minimum wage and those aged 19 are eligible receive 90 percent of the minimum wage.