National Minimum Wage Flashcards
What is the national minimum wage?
It is the minimum pay per hour most workers in the UK are entitled to by law.
What are the benefits of a national minimum wage?
Poverty alleviation and reduce wage differentials. Those on very low incomes are now given a higher pay. This reduces the gap between the poor and rich.
Incentives to work. It reduces voluntary unemployment, since workers know they can get higher paying jobs.
Fiscal benefit to the gov. More people incentivised to work means the gov dosent have to pay as much in benefits also more tax revenue for them. More money for spending now.
More productivity. People will have a boost to their morale since they will have more money.
Incentivises for firms to boost human capital. This means making the most out of the situation by maybe increasing the skills and abilities of its workforce.
Counter monopsonist employers. They charge very low wages which is very bad for workers.
What are the problems with a national minimum wage?
Unemployment. If the wage is above the competitive wage, there will be an excess supply of labour, known as real wage unemployment. This is because costs increase for employers. The more elastic D&S of labour is, the more unemployment there will be.
Youth lose out the most. Workers are paid according to their MRP and so the youth who may not have the skills or experience will not be taken on.
Workers who are not paid the NMW, will demand for higher wages so they can keep the wage differential. They are no longer happy. This can be another cost to employers and can also raise inflation.
Cost to business. Businesses may struggle to operate. They may shut down as a result, or move elsewhere. Lack of competitiveness harming UK economy since higher costs= higher prices.
Regional differences. If this is not considered and we have one wage fits all NMW, it is not doing its intended aim.
Hit to gov finances. If theres a lot of state employment, rising NMW will also be costly for the gov.
Evaluation of a NMW
Monopsony labour markets. NMW may result in higher wages as well as more employment in a monopsonist labour market.
If theres inelastic demand and supply of labour, then increases NMW will result in a little bit of unemployment.
If theres elastic demand and supply of labour, then increases to NMW will result in high levels of unemployment.
