Minimum Wage

In representative democracies the minimum wage is determined by a political process that reflects the interest of the agent who proposes the pricing policy, the nature of the agent approving or rejecting the proposed policy and the pressures exerted by the capital owners and the workers’ union on the second agent. In some cases the first agent is a professional civil servant and the second agent is the ruling politician. The professional office holder may propose a detailed policy in response to the request and possibly the guidelines of the ruling politician. In other situations the policy is proposed by a politician (a Senator, a Parliament member) and the proposal needs to be approved by the legislature (the Senate, the Parliament). Although our model can be applied to both situations, we henceforth adhere to the former interpretation referring to the agenda setter as a bureaucrat and to the agent approving or rejecting the proposed policy as the ruling politician. The bureaucrat whose objective function reflects his and the ruling politician’s preferences is assumed to be a leading player.