What Factors Prompt an Increase in Minimum Wage?

A minimum wage is a government enforced lower limit on the amount an employer can pay an employee, subject to exemptions. While it is very rare that the minimum wage is decreased, a government may impose an increase in minimum wage for a variety of reasons. Some may simply be procedural changes rather than an intentional increase for all recipients. An increase in minimum wage may be a response to inflation. It's also possible for an increase to be a politically motivated measure.

It is possible for there to be an effective increase in minimum wage for some recipients without a change in the rate itself. For example, regulations could change so that people under a certain age no longer receive a specially reduced rate, thus giving them an effective wage. There could also be changes to the regulations about staff who receive tips, such that the employer makes a greater contribution even if the staff receive enough in tips to cover the minimum rate.

The most common reason for a change in the general minimum wage rate is to keep pace with inflation. A government could do this either by tracking price indices that measure the cost of living, or by tracking pay indices that track salaries of people earning more than the minimum wage. Governments do not always automatically increase the minimum wage in line with inflation. This can create political debate as persistently keeping the minimum wage at the same level can be seen as an effective cut in the real value of income for minimum-wage staff.

Arguably, labor union action could lead to an increase in minimum wage. Strike action could result in employers agreeing to pay staff more than the minimum wage. In turn this could lead to complaints that the pay received by staff working for these companies had become a "new standard" for the lowest paid workers. Government might then conclude it was necessary to raise the minimum wage to avoid a disparity.

Aside from keeping line with inflation, raising the minimum wage would normally be seen as a political and economic issue. Supporters of higher minimum wages argue that raises will increase purchasing power and help stimulate the economy. Critics argue that it will lead to job cuts, with employers either taking on fewer staff or outsourcing work overseas. Which side of this debate is winning at any time may have a major influence on whether the minimum wage rate increases.