3.5 - National Minimum Wage Flashcards
What are the 2 schools of thought regarding Minimum Wage?
Increases unemployment
Reduces unemployment
How can a NMW theoretically reduce unemployment?
Provides income incentive
Strong labour supply
Escape unemployment trap
How can a NMW theoretically increase unemployment?
Firms incur higher AVC
Reduces labour demand
How do labour elasticities influence the impacts of NMW?
Inelastic => Smaller change in S/D
What are the general advantages of a NMW?
Helps low incomes
Alleviates relative poverty
Moral boost
Productivity incentive
How can a NMW increase tax revenue?
More taxable incomes
Productivity - Corporation
Less benefit spending
How can a NMW be applied as a counter to monopsony?
Reduces employee exploitation
Harms profitability
How does a NMW provide an investment incentive?
Workers paid higher wages
Incentive for firms to increase productivity
Increases investment in human capital
What are the general disadvantages of a NMW?
Higher wage costs
Harms competitiveness
Potential unemployment + cutbacks
Only helps working population
What does a NMW not consider?
Regional differences
Cost of living, labour market conditions etc
Why might the NMW fail to alleviate poverty?
Poor targeting
Many recipients are secondary earners
Household income is adequate
