For most of the last century, the prevailing interpretation of the economic mechanism for labor market functioning has been in line with the neoclassical model of the labor market, which the paradigm has its foundation in the mainstream economic theory of supply and demand. Therefore, any external intervention in the autonomous setting of prices in the markets necessarily results in negative economic effects, even in the case of legislative fixing of minimum labor prices. But, because of a need to reduce poverty of the poorest workers and the related public interest for that issue, which influenced the election of their representatives in political bodies, minimum wage setting took place worldwide. It was not until the mid-1990s that new empirical economic studies called into question the neoclassical model of the labor market and indicated that there were no negative effects of introducing minimum wages in the results of statistical analysis. Since then, there has been a continuing economic scientific and public debate on the real effects of minimum wage as a government intervention in the economy, which is constantly coming up again with almost every new study or new interventions in the minimum wage level. Although many think of this issue as marginal, because of usually low levels of minimum wages, or a small proportion of the workers covered, in economic terms it is a very important issue for the further course of economic developments. Serious doubts about the foundation of the market economy and it’s application on labor market price intervention, can bring major changes in all segments of the economy in the long run. To date, a number of empirical studies have applied several methods of examining the effect of minimum wage on labor market parameters. From simple comparisons of macroeconomic trends, through in-depth analysis of various branches of the economy at the level of enterprise surveys and applying a qualitative method of economic analysis, to various meta-studies and complex statistical analyzes performed on statistical data. In this work, multiple linear regression techniques were used on the data panels, containing data from the relevant Eurostat and World Bank statistical databases. Linear and nonlinear panel analysis were made on the economic model, turned into a panel models on which four research hypotheses were tested. The analysed economic model of the minimum wage effect on labor market is nonlinear, with all of its variables logarithmically transformed. The scope of this dissertation is to determine, on the example of countries in the European Union, is there a statistically significant influence of the statutory minimum wages on labor market parameters, that is, unemployment and employment rates. The effect of minimum wage on income inequality has been further examined, which is the second most analyzed effect of minimum wage in economic studies to date. The main objective of this doctoral dissertation is to empirically investigate validity of the neoclassical labor market model, and its interpretation of the consequences of introducing a minimum wage. This has been done on macroeconomic data on labor market parameters and other selected economic indicators in the EU Member States over the past twenty years. The primary scientific contribution of this dissertation is given through exposure to empirical testing of one of the major economic theories, the law of supply and demand, and its application to the labor market in the form of the neoclassical model. For the first time, this research conducts a comprehensive study of the effects of minimum wage across all the member states of European Union, over a longer period of time than in similar studies to date, through four research hypotheses. The first research hypothesis explores the statistical significance of the impact of the minimum wage on the unemployment rate, and its definition is directly related to the main research objective. The neoclassical labor market model primarily links minimum wage and unemployment, although the vast majority of studies published so far have focused only on employment. Drawing important conclusions from analyzing only one labor market indicator does not provide enough certainty, so this study included several other hypotheses that make this research credible as a whole. The second research hypothesis tests the effect of the minimum wage on the employment rate, and the third hypothesis tests the impact of the minimum wage on the low-skilled workers employment rate, for which studies have found the highest intensity of the minimum wage impact. The fourth research hypothesis examines whether the minimum wage affects inequality of an income distribution, which is defined in this research as the ratio of the first and fourth quintiles of the distribution of equivalized income in the EU Member States. The results of the panel analyses confirm the first two research hypotheses, while the third and fourth hypotheses remain unconfirmed. After conducting linear panel analyses, which were more suitable for testing the research hypotheses in this dissertation, in order to simulate the impact of changes in the minimum wage levels, it was further necessary to determine in more detail the form of the function of the relationship between the minimum wage and the labor market parameters. This was done by an iterative procedure and the use of substitution functions in the performed nonlinear panel analyses. The procedure resulted in nonlinear functions that consistently showed that there was a break in the trends of rising or falling dependence of unemployment and employment rates on the minimum wage. On the basis of these estimated non-linear functions, recommendations were made to economic policy makers in Croatia and proposal of the guidelines were defined for correcting the existing recommendations of the European Parliament for setting minimum wages in member states.