Definition
Federal, state, and local governments may establish minimum-wage standards, and the highest applicable rate generally controls.
Political Dictionary
Minimum Wage
The minimum wage is the lowest hourly pay employers may legally provide to covered workers.
Why It Matters
It affects earnings, labor costs, employment decisions, prices, and income distribution.
How It Works
Employers must pay covered workers at least the applicable rate, subject to exemptions and special rules.
History
The federal minimum wage began under the Fair Labor Standards Act of 1938.
Example
A city may require a higher minimum wage than the federal level.
Common Misconceptions
- Every worker is covered by the same rate.
- Raising the minimum wage has no possible tradeoffs.
- The federal rate automatically rises with inflation.
Related Terms
- Fiscal Policy
- Monetary Policy
- Inflation
- Economic Growth
- Government Spending
Related Topics
See Also