What is "maximum wage"

n. A state-enforced limit on how much an individual can earn.

A maximum wage, also often called a wage ceiling, is a legal limit on how much income an individual can earn. It is a prescribed limitation which can be used to affect change in an economic structure, but its effects are unrelated to the benefits of minimum wage laws used currently by some states to enforce minimum earnings. A maximum wage does not directly redistribute wealth, but it does limit the nominal income of specific workers within a society.

Advocates argue that a maximum wage could limit the possibility for inflation of a currency or economy, similar to the way a minimum wage may limit deflation. If these hypotheses are true, implementing both pieces of legislation would achieve an economy with wages that cannot inflate or deflate past the point of the relative maximum/minimum wage (respectively). Accordingly, wages in the economy would hover between the maximum and minimum, and the populace would live between the two wage points. Supporters say a maximum wage could also reduce devaluation of a currency by limiting the amount any member of the populace can earn, and consequently effectively limiting the availability of currency.

Critics argue that a maximum wage on the upper class merely restructures compensation and benefits, moving the excess income beyond the reach of more direct taxation policies. These critics point out that in practice a maximum wage only limits the nominal income of workers, and as such has none of the redistribution benefits that a progressive income tax table with uncapped income would have. Economists of the monetarist school hold that the ability of a maximum wage to limit inflation is false; instead they believe that inflation is controlled by growth in the money supply according to the quantity theory of money, rather than through growth in actual wages.