Everything about minimum wage

Minimum wage means firms have legal obligaton to pay their works at a minimum rate set by the government.

Base on the neo-classical economic model, it is a form of price control in which the government set up a price floor. Therefore, the equilbrium price has changed to a higher level and the demand for labor shrinks. This will lead to more unemployment.

As a result, the group of low income workers that remains to be hired will get better pay. However, the same group of low income workers will get least chance of employment (some will get lay-off).

However, there are oppositions to the traditional supply and demand model presented here. It is obvious when the employer has larger bargaining power, monopsony exists. In opposite to monopoly which only one seller domainates the market, monopsony exits when only one buyer domainates the market. When this happens, the supply and demand curve for an efficient market breaks down and thus the above theory will not hold true.

In this case, a minimum wage law will help most of the existing low income workers with minimal impact (or perhaps an increase in unemployment). Therefore, it (the minimum wage law) will benefit the low income worker group and have a negative impact on the monopsony group (employers).

Unfortunately, the debate has not been settled and no majority consensus has been reached among economists at this point. (Before the 90s, the traditional neo-classical theory was the mainstream).

http://en.wikipedia.org/wiki/Minimum_wage#Surveys_of_economists