Minimum Wages

 

UK Min Wage

• The minimum wage was introduced in April 1999 at a rate of £3.60 per hour and a rate of £3.00 for those between 18-21.
• The minimum wage is now £4.20 (2002)
• It was hoped that a minimum wages would increase the incomes of the lowest paid and help reduce relative poverty.
• UK National Minimum Wage April 2007 £5.35 increases to £5.52 in October 2007

 

Benefits of a minimum wage

1. Reduce Poverty. Increasing the wages of the lowest paid these workers will have an increase in income and this will reduce poverty
2. Increase productivity. The minimum efficient wage theory states that higher wages can increase the incentive for people to work harder.

3. Increase the incentives for the unemployed to accept a job.   There will be a bigger difference between the level of benefits and the income from employment

4. Increased Investment. Firms will have an increase incentive to invest and increase labour productivity
5. Counterbalance the effect of Monopsony employers. If firms have Monopsony power they can drive wages down by employing less workers. However they will be not able to do this, therefore in this case a minimum wage is likely to have a positive effect on employment.

Diagram of Minimum Wage on Monopsony

A monopsony pays a wage of W2 and employs Q2.

If a minimum wage was placed equal to W1, it would increase employment to Q1.

Essay on the Minimum Wage - Does it reduce poverty?

• Disadvantages of Minimum Wage

 

Essays and Revision Notes on Labour Markets

• Labour Markets home
• Demand for Labour
• Supply of Labour
• Wage Determination
• Labour Market Imperfections

Flexible Labour Markets

• Flexible Labour Markets
• Adv and Disadvantages of Flexible Labour Markets
• Increasing Labour Market Flexibility
• Changes UK Labour Markets
• Participation Rate
• Trades Unions
• Ageing Population

Minimum Wages

• Minimum Wages
• Disadvantages Minimum Wages
• Essay on Minimum Wage
• Min Wage at Tutor 2u

 

 

National Minimum Wage - Low Pay commission 2006