# Justified Wage: What It Means, How It Works, and Examples

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## What Is a Justified Wage?

A justified wage is a pay level for a job that is determined by market dynamics as well as the degree of skills and experience that the job requires. It is a wage level that is high enough to attract qualified candidates but low enough to be affordable to the business.

The justified wage may be viewed as the amount above the mandated minimum wage that an employer must pay to attract a candidate with the capabilities that the job requires. The term "fair compensation" is often used interchangeably with "justified wage" in political and economic discussions.

### Key Takeaways

*   A justified wage is a fair level of compensation paid to an employee that takes into account both market and non-market factors.
*   The wage is often higher than the minimum wage in order to allow employers to actively recruit and hire workers.
*   The type of work, the skills and experience required, the job duties, and the general state of the economy all come into play when establishing a justified wage for a given position.

## Understanding a Justified Wage

A justified wage begins with the economic factors of supply and demand in the workforce. A scarcity of job candidates with the skills needed will increase the justified wage offered.

There also are many job-specific factors such as the levels of work experience, education, and training the job requires. The supply of applicants who meet the requirements is important.

A wage is justified when it is seen as acceptable to potential candidates and economically feasible for the employer.

When the economy is in a recession, the actual level of wages for many workers drops to the minimum wage or a little above. There are too many candidates for too few jobs, and the businesses that hire may be barely breaking even. During the [Great Recession](https://www.investopedia.com/terms/g/great-recession.asp) that started in 2008, even investment banks justified paying lower wages due to their slowing revenue growth.

### $7.25

The federal minimum wage has been $7.25 per hour since 2009. Many states, cities, and counties have set higher minimum wages. Twenty-one states increased their minimum wages on Jan. 1, 2025.

## Example: Justified Wages for Employees

Companies may compare their employees' [salaries and work experience](https://www.investopedia.com/lowest-paying-jobs-8714080) when determining a justified wage. For example, one current employee, has 10 years' experience and receives a salary of $65,000. Based on this information, management determines that another employee's justified wage is $60,000 given that they have eight years' experience.

Management may also consider other factors when establishing a justified wage, such as the responsibilities the employee will have and the revenue that their work will generate. For instance, the amount of [commissions](https://www.investopedia.com/terms/c/commission.asp) a stockbroker writes justifies their wage.

Employees can have input into their justified wages during pay reviews by discussing how they are adding value to the company.

## Example: Justified Wage for CEOs

When determining a justified wage for a [CEO](https://www.investopedia.com/terms/c/ceo.asp), the board of directors of a company typically considers:

*   _Leadership_: What leadership skills does the CEO have? Do they have the ability to unite the senior management team and lead by example during times of transition? A CEO’s justified wage is based in part on an ability to motivate employees.
*   _Strategic Ability:_ Does the CEO allocate resources effectively? Is the CEO entering new markets that enable the organization to grow and attract more customers? For example, the board of a multinational company may determine the justified wage of a CEO based on a proven record of successfully entering foreign markets.
*   _Networking_: A CEO’s justified wage might depend on how effectively network connections are used. For instance, does the CEO have the ability to lure senior executives from competitors? A CEO with good contacts in the industry can merit a higher justified wage.

## How Is the Minimum Wage Justified?

The federal government has set a minimum wage since 1938. The goals were to stabilize the economy and to protect the health and well-being of American workers. It also addressed the needs of a substantial portion of the population: low-wage workers who lacked the bargaining power to demand a subsistence wage. States and counties, particularly those in parts of the country with high living costs, set their own minimum wages at a higher level that the federal requirement of $7.25.

## Is a Justified Wage the Same As Equal Pay?

An employer who determines an individual's pay based on the concept of a justified wage has no logical reason to consider gender, race, or ethnicity. For that reason, a justified wage presumably is equal pay.

## How Do I Make an Argument for a Higher Wage?

One of the key considerations when an employer sets a justified wage is the person's contribution to the bottom line. When you're asking for a raise, be prepared to discuss how you've contributed to the company's success.

If you can, cite numbers. Does the competition pay better than your company? Is the average pay for your job position higher? Look for hard numbers to strengthen your case.

## The Bottom Line

The concept of justified wages is used primarily by employers and personnel departments to determine a pay scale that is reasonable and acceptable to both the employer and the employee.

Understanding the many factors that go into setting a justified wage can help employees negotiate a higher wage based on the skills and experience they bring to the job and the prevailing economic conditions that inform wage decisions.  

> **Article Sources**
>
> 1.  CNN. "[Workers In These States Just Got a Pay Raise](https://www.cnn.com/2025/01/02/economy/us-states-minimum-wage-2025/index.html)."
>     
> 2.  Economic Policy Institute. "[Twenty-two states will increase their minimum wages on January 1, raising pay for nearly 10 million workers](https://www.epi.org/blog/twenty-two-states-will-increase-their-minimum-wages-on-january-1-raising-pay-for-nearly-10-million-workers/)."
>     
> 3.  Cornel Law School. "[Minimum Wage](https://www.law.cornell.edu/wex/minimum_wage#:~:text=The%20minimum%20wage%20was%20designed,and%20well%2Dbeing%20of%20employees.)."
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> 4.  Chron. "[How to Word Justifying More Salary](https://work.chron.com/word-justifying-salary-19832.html)."