National Minimum Wage

Question 1

Benefits of NMW?

Answer 1

• Fairer pay, less discrimination; less poverty, less worker exploitation

• May not cause unemployment if the economy is growing, if better pay boosts productivity or if it increases spending by lower paid (with a high MPC) in the economy (higher AD increases the demand for labour)

• Helps reduce income inequality

• Incentivises more workers to search for work & join labour market

• Lower costs of welfare for government

Question 2

Costs of NMW?

Answer 2

• May cause real wage unemployment

• Only covers employees; self-employed in the gig economy may be paid less

• Increases costs to businesses; may speed up automation causing
technological unemployment

• Could become inflationary if other workers try to maintain pay differentials with lower paid workers

• Less international competitiveness (adds to business costs)

• Does not tackle many aspects of poverty reduction