Paper 1 - An and Ev

Question 1

NMW - An and Ev

Answer 1

An:

• Poverty alleviation
• Reduce wage differentials
• Incentive to work - reduces ‘voluntary U’
• Fiscal benefit to govt
• Rise in productivity
• Incentive to boost human capital

Ev:

• U - but elasticity? (monopsony LM?)
• Youth lose out the most
• Those not on NWM may ask for wage rise - to keep wage differential
• Cost to business - shutting down, lack of competitiveness
• Regional differences?
• Hit to govt finances given state employment

Question 2

Wage differentials - An and Ev

Answer 2

An:

• Incentives - skills - training - qualifications
• Tickle Down Effect - jobs - spending - tax
• Encourage enterprise
• Encourages work not welfare
• Promotes Efficient Resource Allocation

Ev:

• Income inequality - govt finances - growth = social costs
• Trickle Down Effect may not occur
• Govt solutions limited if they are the monopsonist employer - risk of govt failure?

Question 3

Policies to redistribute income/wealth

Answer 3

• Taxation - progressive + regressive
• Benefits - Ev: poverty trap, govt finances
• Minimum/maximum wages - Ev: incentives, employment
• Legislation - Ev: cost to firms, enforcement, govt failure
• Govt spending - education/training/healthcare - Ev: govt finances, time