National Minimum Wage - A-Level Economics
National Minimum Wage (NMW)
National Minimum Wage is the legal minimum hourly rate of pay an employer can pay its workers
If NMW is set above the equilibrium wage rate, there will be excess supply of labour-‐ unemployment.
Advantages of NMW
- A reduction in wage inequality between men and women. In many economies, women are paid very little, so a NMW will benefit them more than men.
- Reduction in exploitation of workers, and therefore a reduction in poverty
- Higher wages lead to increased morale of the workforce and increased productivity of workers.
- To maintain a wage differential, higher calibre jobs are paid better. Therefore all workers benefit, not just those currently getting paid less than NMW.
- The government normally has to pay money to those who are in work but earn low wages. An increase in wages would reduce this expenditure from the government, and the increased employment income within the economy leads to an increase in income tax revenue. Therefore, the government have more money which they can spend on important public services such as health and education.
Disadvantages of NMW
- If the NMW is set above the equilibrium wage rate, there will be an encrease in unemployment. This is because the price of labour increases, so demand from firms falls. Labour might be replaced by capital (machinery) in the production process (e.g. self-‐service tills in supermarkets).
As this graph shows, more people want to work at the higher wage rate, and firms want to employ fewer workers. This leads to an excess supply of labour ‐ unemployment.
- The increase in unemployment mean that the government has to pay more in unemployment benefit
- An increase in inflation because firms try to make up for the increased wage costs by increasing prices.
The NMW is designed to help reduce poverty, but those who are poor do not tend to have a job in the first place. Therefore the NMW does not help them at all because it makes it even harder for them to get a job.
- The main benefiters were part-‐time workers and women, who were both paid low before NMW. This increases income for women who bring in a second income to a home. These are not poor people, so the NMW is not helping those who need the help.
- Employers have to finance the increase wage costs. They may make workers redundant, or might pass on the cost to consumers through increased prices (inflation). Both of these are bad for the economy. Some businesses might have to take cuts in profit margins, and this can lead to failing of a few businesses.
- Younger and lower skilled workers will find it even harder to find a job. This will lead to a substitution effect, where employers tend towards experienced workers as opposed to younger ones.
- The NMW does not take into account the fact that costs of living are different in different areas (e.g. London and Milton Keynes).
National Minimum Wage is the minimum amount of pay that employers are legally required to pay their employees. It is set by the government and varies depending on the age of the worker.
All workers who are aged 16 and over are eligible for National Minimum Wage. The rate of pay varies depending on the age of the worker, with different rates for those under 18, 18-20, 21-24, and 25 and over.
National Minimum Wage is determined by the government, based on recommendations from the Low Pay Commission. The Commission takes into account various factors such as the state of the economy, the cost of living, and the impact on businesses.
The impact of National Minimum Wage on businesses can vary depending on the size of the business and the industry it operates in. Small businesses may struggle to afford the increased costs of paying their employees, while larger businesses may be better able to absorb the costs. Some businesses may choose to cut hours or jobs to compensate for the increased costs.
National Minimum Wage can have a positive impact on workers by providing them with a guaranteed minimum level of pay. However, some workers may still struggle to make ends meet on the minimum wage, particularly if they have high living expenses or work in an expensive area.
The first National Minimum Wage in the UK was introduced in 1999, after years of campaigning by trade unions and other groups. Since then, the minimum wage has been gradually increased, with different rates for different age groups.
National Minimum Wage is the legally required minimum amount of pay that employers must pay their employees. Living Wage, on the other hand, is a voluntary higher rate of pay that employers can choose to pay their employees, based on the cost of living.
Arguments for National Minimum Wage include that it provides workers with a guaranteed minimum level of pay, helps to reduce poverty, and can boost consumer spending. Arguments against National Minimum Wage include that it can increase unemployment, particularly for low-skilled workers, and can increase costs for businesses.
National Minimum Wage can have a range of impacts on the economy, depending on factors such as the level of the wage and the state of the economy. Some potential impacts include increased consumer spending, reduced poverty, and increased costs for businesses.
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