Minimum wage Flashcards
when was national minimum wage introduced
1999
initial aims of minimum wage
reduce poverty,
reduce pay differentials between men and women,
reduce exploitation of low paid workers,
improve incentives to actively look for paid employment
is national minimum wage ever adjusted
annual uprating based on recommendation from low pay commission
what is aim of national living wage
continue to increase to reach 60% of median earnings by 2020 subject to standard economic growth
features of national living wage
introduced april 2016,
higher minimum wage for workers aged 25+,
ambition to continue to increase to reach 60% of median earnings by 2020 subject to sustained economic growth
what is the real living wage
VOLUNTARY RATE set independently by living wage foundation according to basic cost of living in uk,
applies to all workers 18+,
different to national living wage
what is difference between national living wage and real living wage
NLW for workers 25+ with ambition to reach 60% median by 2020,
RLW voluntary set independently according to cost of living applies to all workers 18+
who does minimum wage legislation affect more out of men and women and why
affects women more due to many more women work part time (has a lot more of impact on part time, differences between men and women more for part time due to this)
what were they originally scared about a minimum wage
improve wages of some but pushing another set of workers out of work (creates winners and losers)
what does the standard model look like
y wage x employment labour supply upward sloping labour demand downward sloping equilibrium price W* equates supply and demand to get equilibrium emplyment E*
what happens to standard model when minimum wage increased
Wmin added in as horizontal line above the equilibrium point (like in A level),
employment goes down
what is substitution effect *
firms substitute away from higher-cost factor to other factors
what is the scale effect *
costs increase, product price increase, product demand decrease, factor demand decrease (in perfect market so increase in cost is passed on because zero profit)
do scale and substitution effect work in the same way
yes, cause employment to fall
explain substitution effect
price of unskilled labour up, adjust production technology to make overall cost cheaper so substitute away from unskilled labour to factors that are relatively cheaper
explain scale effect (income effect)
reducing overall level of production
how do you measure effect of minimum wage from diagram
measured by elasticity of labour demand wrt own wage
what four things does how much employment goes down due to minimum wage depend on (Hicks-Marshall laws of Derived Demand) *
how easy it is to substitute with other factors (eg capital),
elasticity of supply of other factors (eg capital),
low-wage-labour share in total costs,
elasticity of demand for the final product
explain degree of substitutability with other factors (how much employment changes due to minimum wage)
places like supermarkets replacing a lot of staff for machines
explain low-wage-labour share in total costs (how much employment changes due to minimum wage)
how much of the firms total costs is explained by low-wage-labour costs (some employ a lot some don’t)
explain elasticity of demand for the final product (how much employment changes due to minimum wage)
if firm increases price and consumers price responsive then there will be a big change in employment (elasticity of demand)
whats possible reasons for employment not changing by as much as theory suggests **
labour demand is inelastic,
there are offsetting adjustments in non-wage labour costs (EAT - cut paid lunch, tesco cut sunday pay),
uncovered sector absorbs displaced unskilled workers
example of offsetting adjustments in non-wage labour costs (possible reasons for employment not changing as much as theory suggests)
EAT - cut paid lunch,
Tesco - cut Sunday pay
explain labour demand is inelastic (possible reasons for employment not changing as much as theory suggests)
in short run labour demand going to much more inelastic than long run