National Minimum Wage

Question 1

What is the national minimum wage?

Answer 1

• price flooring
• can only have direct impact if its set above the market equilibrium
• can promote labour supply

Question 2

What are the benefits of the NMW

Answer 2

• fairer pay = less pay discrimination and can save people from being exploited
• helps reduce income inequality
• incentivise more workers to search for work and join labour markets
• lower costs of welfare for government
• poverty reduction ( can link to macro )

Question 3

What are the costs ( disadvantages ) of a NMW?

Answer 3

• may cause real wage unemployment ( macro )
• labour demand may fall
• could become inflationary ( macro )
• small business may find it difficult to make profit