Minimum Wages

Question 1

Define minimum wage

Answer 1

Wage rates which employers cannot pay below

Question 2

Advantages of minimum wage

Answer 2

Improves equity —> wage should line up with skills
Reduces the effect of labour market discrimination e.g. paid female workers
Reduces relative poverty —> ensures workers receive high enough income to maintain average living standards
Rise in wages/living standards

Question 3

What are the disadvantages of a minimum wage

Answer 3

Creates real wage unemployment —> rise in labour costs —> more expensive for firms to employ
Reduces international competitiveness —> prices of firms may rise to compensate for the increase in labour costs which worsens the balance of payments
Deters FDI —> MNCs won’t invest where labour costs are high
Rise in costs —> cost push inflation occurs
Depends on proportion of costs which are labour costs to the firms