6.6 The National Minimum Wage Flashcards
What is the national minimum wage?
Wage rate must be paid to employees by law, (though in many labour markets the wage rate paid by employers is above the minimum wage)
What happens if the minimum wage is set above the market clearing wage rate?
Loss of jobs and unemployment if the market is perfectly competitive
If labour markets are monopolistic, what can a minimum wage do?
Increase the wage rate and level of employment (does not mean a min wage will never lead to a fall in employment)
Whalen does the minimum wage only really affect wage rates?
If the wage rate is below the minimum wage(usually when wages are depressed through monopsony power
What happens if a minimum wage is introduce below current wage rate?
No effect
What is a key benefit of a minimum wage?
Reduces explanation of low paid workers
Diagram for the NMW
What do supporters for the national minimum wage argue?
Creates a wage floor(justified on the ground it reduces exploitation of low paid workers
When was the national minimum wage introduced?
Labour gov in 1999
Who introduced the national living wage?
Conservatives coalition gov in 2015
What have the NMW and NLW being increased by during the years?
The rate of inflation
Arguments in favour of NMW?
Improves work incentives and increases labour productivity
(Efficiency wage theory)
Lifts people out of working poverty reducing means tested benefits
What is the efficiency wage theory?
pay people more, they work harder for what they are paid ∴ more productive and efficient
Arguments against NMW
-causes unemployment in labour intensive industries-jobs outsourced and automated
-cost push inflation as businesses pass on their higher costs to consumers
-increased costs of production leads to a decrease in aggregate supply in the economy
-decrease dynamic efficiency
In favour critique for NMW
-being paid more will not necessarily make people work harder (shirking model)
-causes unemployment as employers may switch labour for capital -forces people, to claim benefits (law of unintended consequences)
What is the shirking model
it is very difficult for firms to monitor individual employee’s productivity. For this reason, many employees will choose to not put in extra effort as you cannot track how good they are at any point.
Against critique nmw
Operating under the assumption that firms can instantly spend heavily on expensive infrastructure such as capital is wrong. Most firms cannot just spend lots on capital. Industries that are labour-intensive may not be able to be automated at current technology levels.
