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What Are the Different Types of Minimum Wage Policy?

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  • Written By: Osmand Vitez
  • Edited By: PJP Schroeder
  • Last Modified Date: 25 February 2019
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Minimum wage policy is a government regulation that requires a company to pay a specific base wage to all workers. In most cases, minimum wage laws affect the hourly wage paid to workers; salaries are not included here. The different types of minimum wage policy a government can institute may be national, local, or based on free market principles. Many little tweaks and adjustments can occur here depending on how governments determine minimum wages. These laws are often controversial as the effects are both seen and unseen and the consequences intended and unintended.

National minimum wage policy indicates all workers entering employment will earn a specific starting wage. Regardless of industry or job type, a new worker can have the expectations of this starting pay. The purpose of a national minimum wage is to ensure that all workers are able to achieve a specific standard of living. In some cases, these laws may come from the idea of fairness in terms of employee remuneration. For example, a worker entering an unskilled job should receive the same starting wage as an individual starting a semiskilled job in a different industry.

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Local minimum wage policy may occur when a national wage policy is absent from or insufficient for the market. Local policies may be in place due to the conditions of a state being different from another. For example, the cost of living in one state or local region can be significantly higher than another area. The result is a necessary increase in minimum wage policy in order to offset the standard of living costs between the two regions or locales. The difference in minimum wage can often be quite different, from a few cents to a few dollars, in comparison to the national minimum wage.

Free market principles dictate no minimum wage policy from national or state governments. Each individual’s wage bases itself on the current market rate for workers with similar knowledge, skills, and abilities. The wage can fluctuate frequently based on changes in the overall market or other economic changes. The result here is often a wage much lower than one set by a national or state minimum wage policy. More workers may receive employment, however, due to the lower wages per worker, allowing for more workers employed.

A minimum wage policy may also extend a bit further if necessary. For example, the policy may have different pay scales for individuals, family size, and other statistics. Too much control through regulations, however, can greatly restrict a market and choke off the self-interest of individuals to achieve success.

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