Chapter 1 - What is a minimum wage

1.3. A short history

Selective intervention at first1

Initially, minimum wages covered relatively few categories of workers and sought to protect those considered to be especially vulnerable. New Zealand was the first country to implement a minimum wage in 1894, followed by the Australian state of Victoria in 1896, and the United Kingdom in 1909. Frequently, minimum wages were considered as a temporary measure, to be phased out once wage bargaining between social partners would be established. Early forms of minimum wages sometimes targeted their protection at homeworkers or women (see box 1. below).

Box 1.
The origins of minimum wages in the United States

In the early 1900s, there was widespread concern about “sweatshops” in the United States, and particularly about the working conditions of women and children. The idea of a minimum wage was supported both by the American Association for Labor Legislation and the National Consumers’ League, a group led by women, whose board of directors endorsed the notion of a legal minimum wage for women in 1909. Minimum wages were first introduced at state level and in most cases applied only to women and children. State minimum wages were regularly challenged in courts, and in 1923 the US Supreme Court declared minimum wages to be unconstitutional. In 1938, following an initiative by President Roosevelt, the US Congress adopted the Fair Labor Standards Act, which instituted a federal minimum wage. Its constitutionality was almost immediately challenged in courts, but was eventually validated by the Supreme Court in 1941.

Source: Neumark D.; Wascher, W.. 2008. Minimum Wages. (Cambridge, MIT Press)

Expanding coverage after the second world war, and a halt in the 1980s

After the Second World War, the number of countries with minimum wages expanded. Newly independent countries such as India (1948) and Pakistan (1961) were among those adopting minimum wages. Francophone African countries adopted the French model of a general minimum wage (SMIG) with a lower rate for agriculture (SMAG), while Anglophone African countries adopted the tradition of sectoral wage boards.

The legal coverage of minimum wages was progressively expanded as it was increasingly felt that all workers, as a matter of right, should receive protection against unduly low wages
. Nationally applied minimum wages appeared in the Netherlands (1969), France (1970) and Spain (1980). In the United States, coverage expanded from about 20 per cent of the workforce in the early years to nearly 80 per cent in 19702. Coverage also expanded in countries with sectoral minimum rates. States in India, for example, gradually expanded the number of sectors and occupations “scheduled” for minimum wage coverage.

The economic and intellectual contexts of the 1970s and 1980s brought this expansion to a halt in some countries. The United Kingdom dismantled its wage councils in the 1980s.

The return of minimum wages – the 1990s and beyond

In recent years, minimum wage systems have been established or strengthened in many countries to address working poverty and inequality. The United Kingdom introduced a new statutory minimum wage with national coverage in 1999. Since the early 1990s eight other members of the Organisation for Economic Co-operation and Development (OECD) have adopted a statutory minimum wage, including the Czech Republic, the Slovak Republic, Poland, Estonia, Slovenia, Ireland, Israel and most recently Germany.3 Most OECD countries without a statutory minimum wage have legal floors set through collective agreements, such as in Denmark, Finland, Norway or Switzerland. As a result, minimum wages exist in all European countries.

Many developing and emerging economies also established or strengthened minimum wages. China adopted a minimum wage in 1994 and strengthened it in 2004; South Africa established a system of minimum wages after the end of apartheid in 1997; Brazil re-activated its minimum wage policy in 2005; the Russian Federation complemented its national minimum wage with regional floors in 2007; and Malaysia adopted a national minimum wage in 2013, followed by Myanmar and the Lao People’s Democratic Republic in 2015, and by Macao (China) in 2016. In Africa, the most recent country to introduce a national minimum wage was Cape Verde in 2014.

1 Based mainly on Starr, G. 1981. Minimum Wage Fixing An international review of practices and problems (Geneva, ILO); Neumark and Washer (2008, ch. 2), and Marinakis, A. 2008. The role of ILO in the development of minimum wages, the ILO Century Project (Geneva, ILO).
2 Neumark D.; Wascher, W.. 2008. Minimum Wages. (Cambridge, MIT Press)
3 OECD. May 2015. “Focus on minimum wages after the crisis: Making them pay”.