6.6 the national minimum wage

Question 1

what is the definition of a national minimum wage?

Answer 1

a minimum wage rate that must be paid by law to employees

Question 2

what is the minimum wages effect on labour markets similar to

Answer 2

interchangeable with trade unions

in monopsony market wage rate and employment will rise

in perfectly competitive market, will make market imperfectly competitive, rise wages in cost of rising unemployment due to the excess supply of labour

Question 3

what are the advantages of a national minimum wage?

Answer 3

poverty alleviation

reduces wage differentials

incentivises work (reduces voluntary unemployment)

fiscal benefits to government (more tax revenue, less benefits)

increases productivity as boosts morale

incentivise to boost human capital e.g. train

counter to monopsonist employers as takes away their wage making power, wages and employment rises

Question 4

What are the disadvantages of a national minimum wage?

Answer 4

can bring real wage unemployment as NMW creates excess supply of labour (D doesn’t match S due to artificial equilibrium)

youth are worse off due to having less productivity due to being low skilled.

could cause workers who earn above NMW to demand more to keep wage differential gap as they believe they may be worth more, this intern could lead to higher costs to business therefore cost push inflation

cost to business, lose competitiveness as firms move higher costs to higher prices, firms could move away

national minimum wage doesn’t account regional differences e.g. in UK more expensive to live in south than north

Hurts Government as higher unemployment means more welfare payments.