6.6 National Minimum Wage Flashcards
National Minimum Wage. This is set by who? What is the defenition? We know that in a competitive labour market the wage rate increased by a trade union can create unemployment as firms choose to employ less workers due to the new wage rate set by the union. Is this the same for the MMW? What about in a monopsonistic market?
a) Set by the government.
b) The national minimum wage is a minimum wage that must be payed to employees by the law.
c) Yes, excess supply ocurrs and therefore unemployment arises as a result.
d) In a monopsonistic market MMW would increase employment and wage rate - similar to the influence of a TU in a monopsonistic market!
Why do some economists say that an MMW is justified? What does it reduce? In which market structure for labour would and MMW be needed if a trade union has a low density and therefore has low power over labour supply meaning it cannot establish a higher/better wage rate for workers?
Supporters of the MMW say it reduces poverty - it prevents ‘rogue’ employers.
a) Economists argue that the application of a ‘wage floor’ prevents the exploitation of low-paid workers. It reduces EXPLOITATION.
b) A monopsony market in which dominant firm exhibit monopsony power (power excercised in a monopsony market where only a few buyers/one buyer exists in the entire market).
List other advantages of MMW. 4 others…
a) MMW provides an incentive to work specifically to those who are voluntarily unemployed. This can lead to a productivity boost and a reduction in unemployment.
b) Fiscal benefit - the governement does NOT need to pay large unemployment benefits. Furthermore, they earn more taxes.
c) Boost in moral due to higher wage. This can positively impact productivity.
d) Firms are more likely to boost their human capital because they’re paying more money to employ them. they will spend more on the staff through employee training that can boost their productivity.
Give two MAJOR disadvantages of MMW…
Give their a single evaluation point that encapsulates both points.
a) Unemployment shall rise if MMW is applied above the free market eqm. This is because less employees will be employed by firms due to the high costs associated with employing workers. As a result there is EXCESS supply of labour. Similar issue to TU’s influence in a competitive market.
b) Youth are impacted greatly. Theylack experience and therefore will recieve less chance of employment by firms. Firms cannot justify employing them at sucha a high wage rate when they lack critical experience.
EVALUATION POINT: The degree of unemployment shall depend on the ELASTICITY of the firm’s DEMAND CURVE!
