the national minimum wage

Question 1

why do Government’s often intervene in the labour market by setting a minimum wage

Answer 1

They do this in order to improve equity & avoid the exploitation of worker

Question 2

what is the minimum wage mean?

Answer 2

A minimum wage is a legally imposed wage level that employers must pay their workers
It is set above the market rate
The minimum wage/hour often varies based on age

Question 3

draw minimum wage diagram

Answer 3

Diagram analysis
The market equilibrium wage and quantity for truck drivers in the UK is seen at WeQe
The government imposes a national minimum wage (NMW) at W1
Incentivised by higher wages, the supply of labour increases from Qe to Qs
Facing higher production costs, the demand for labour by firms decreases from Qe to Qd
This means that at a wage rate of W1 there is excess supply of labour & the potential for unemployment equal to QdQs

Question 4

exam tip minimum wage

Answer 4

When evaluating national minimum wages, do not assume that they will automatically increase unemployment.

Many studies have shown that unemployment does not increase, and in some instances, employment increases. This is likely due to the fact that workers are receiving higher wages and choosing to consume more. This increases total demand in the economy, which in turn increases the demand for labour by firms, thus reducing/eliminating any potential unemployment.

Question 5

advantages of minimum wage

Answer 5

Guarantees a minimum income for the lowest paid workers

Higher income levels help to increase consumption in the economy

May incentivise workers to be more productive

Question 6

disadvantages of minimum wage

Answer 6

Raises the costs of production for firms that may respond by raising the price of goods/services

If firms are unable to raise their prices, the introduction of a minimum wage may force them to lay off some workers, increasing unemployment