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Is minimum wage a price floor or price ceiling?

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Mizdee | Student, Undergraduate | (Level 1) Valedictorian

Posted July 31, 2012 at 2:35 PM via web

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Is minimum wage a price floor or price ceiling?

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thanatassa | College Teacher | (Level 2) Educator Emeritus

Posted July 31, 2012 at 4:06 PM (Answer #1)

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A "price floor" is a government mandated minimum price, as opposed to a "price ceiling" which is a government mandated maximum price. They are both forms of "price controls".  Dogmatic free market economists tend to oppose all forms of price control, but Keynesians and other economists concerned with social justice rather than wedded to abstract economic theories see price controls as essential for humanitarian reasons.

A minimum wage is a type of price floor. Without a minimum wage and other labor laws,  as is seen in countries that allow sweat shops, globalized labor markets can be extremely inhumane, offer workers such low wages that they become essentially indentured serfs in company towns. As many producers will shift factories to agricultural areas in the developing world, where they are the only job in town, there is no "free market" acting to improve working and wage conditions in a globalized economy, and thus international trade regulations and humanitarian pressure groups now, as happened during the industrial revolution in the early 19th century, are needed to address issues of starvation wages, child labor, and humane working conditions.


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