3.5.3 Minimum wage legislation

Question 1

what are minimum wages

Answer 1

• Minimum wages provide an absolute minimum needed to survive
• In a global labour market, people in developed economies need some protection from competition in emerging economies, where prices are lower than developed countries
• Developing and emerging economies minimum wages are rarely high enough to reduce employment or to affect competitiveness

Question 2

minimum wages are kept low because…

Answer 2

• If wages increase, employers employ fewer people
• Look for ways to become more capital intensive in production
• Most unemployment can be linked to structural changes, labour immobilities or recession

Question 3

why are benefits more attractive to some people

Answer 3

• If minimum wage is lower, no incentive to work
• Cost of working does not cover living/childcare costs → higher income with no costs
• Skilled jobs with higher salaries are less accessible

Question 4

skills shortages and competitiveness

Answer 4

• Wage differences between those with/without qualifications is large
• Germany prioritises skills training and engineering courses and is one of the worlds largest exporters of high quality machinery
• Structural change can increase demand for some skills → education training takes time and effort (supply side policies)
• People with scarce skills earn more, affecting competiveness

Question 5

why is migration good for labour

Answer 5

Can help offset excess demand for labour when the birth rate of a country is falling

Question 6

migration within economies

Answer 6

• Moving from a place where there are few jobs on offer to where there are many jobs on offer
• Eg northern british people moving to south of england
• Mass migration in china to more manufacturing areas from rural areas

Question 7

china and different regions having different minimum wages

Answer 7

• and different minimum wages in different areas
• Demand in areas with lower MW makes firms incentivised to outsource here
• Attract FDI and investment → lower costs in rural areas attract firms to establish there
• Locals can move from volatile farming wage to fixed MW
• Supply in areas with higher MW increases → internal migration to cities (interprovince migration)

Question 8

migration between economies

Answer 8

• Can help with increasing job vacancies and skill shortages
• Migrants from mexico and latin america provide cheap labour for US farming

If stopped:
- US farms face labour shortages and will have to pay higher wages to recruit local farm workers
- Food prices rise, increasing poverty for those on low incomes
- Less disposable income
- Hurts domestic businesses if less spending occurs

Question 9

why can economies become unequal

Answer 9

• Very low wage rates
• Developed: no incentive to work if benefits are higher/the same as wages for unskilled workers → POVERTY TRAP
• Minimum wages can be raised to increase incentive to work
• Working tax credits to ensure people are better off employed
• Wage rates may be below level needed to maintain health and wellbeing
• Very high incomes are not heavily taxed
• Accumulated wealth