4. Income and Wealth: Poverty and Inequality - National Minimum Wage

Question 1

What are the arguments for a NMW?

Answer 1

1. Poverty alleviation - boosts the incomes of low earners2. Reduces wage differentials - less distance between rich and poor - less inequality3. Incentivises working - reduces voluntary UE4. Fiscal benefits to gov. - more ppl in workforce more tax rev. + less spend on benefits5. Increases productivity - workers get morale boost from wage rise6. Incentive for firms to boost human capital - higher productivity makes workers better value for money - decreases UE7. Counters monopsonist employers - stops monopsonies exploiting workers and giving v low wages

Question 2

What are the arguments against the NMW?

Answer 2

1. Creates unemployment - classical UE bc excess supply of labour occursBUT; depends on elasticity of supply and demand - more inelastic = less impact2. Youth lose out most - youth move least experience etc. -cant justify being paid NMW - youth unemployment 3. Those earning more than the NMW may ask for higher wages to maintain the wage differential - increased costs & inflation etc.4. Increased costs to businesses - make them shut down or lose competitiveness5. Doesn’t account for regional differences - NMW wouldn’t need to be so high in North bc of lower living costs etc6. May hit gov. finances - if gov. is employing large no. of low-paid workers who wld go on to the NMW - increased costs