Minimum wage

Question 1

What are the pros and cons to setting a minimum wage?

Answer 1

Question 2

1 The desirability of a minimum wage depends on various factors:

Answer 2

State of the economy. During strong growth and falling unemployment, it is easier for firms to pay higher wages.

Question 3

2 The desirability of a minimum wage depends on various factors:

Answer 3

The elasticity of demand. Is demand for labour wage inelastic? or will some firms be very sensitive to higher wages? Some service sector jobs like hairdressers/cleaners may argue a small increase in their wage bill could lead to unemployment.

Question 4

3 The desirability of a minimum wage depends on various factors:

Answer 4

Regional wage rates. Could you allow for regional differences in wages? (e.g. a London specific minimum wage)

Question 5

4 The desirability of a minimum wage depends on various factors:

Answer 5

Type of labour market. Are labour markets competitive or monopsonistic?

Question 6

5 The desirability of a minimum wage depends on various factors:

Answer 6

Is there scope for firms to increase labour productivity? and therefore be able to afford the wage increases.