The living wage was introduced in the UK in 2005 and is a wage which is suggested to employers which is high enough for the employee to sustain a normal standard of living. It varies slightly in London as there are higher living costs here. This variation equates to £8.80 compared to £7.65 in the rest of the UK (Livingwage.org, 2014). To understand the imminent effect of an increasing living wage to £10, aided by trade unions, from the current values (GOV.UK, 2014) there is a need to appreciate the economic value of a price floor. A price floor is the lowest legal price that something (products and labour included). At the equilibrium wage the number of hours of labour needed filling is equal to the number of labour workers at the employers disposal. If we were to increase the living wage to £10 then this would mean that there would be more workers willing to work due to the increase in suggested pay, however the employers may not be able to pay this wage leading to a surplus in workers and a potential for an increase in unemployment.
(FIGURE 1)
Figure 1 shows how this surplus is created with an increase in the living wage (F) from the equilibrium wage (MinimumWageInsanity, 2014)
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This formal body is used to advise the UK government about minimum wage alterations, and as of the National Minimum Wage Act of 1998 they were able to implement the living wage in the spring of 1999, at a rate of £3.60 (politics.co.uk/national-minimum-wage, 2014). The main reason for the implantation of the Labour Parties minimum wage policy was due to the rapid decline in trade union membership meaning fewer people were able to help support employees (GOV.UK, 2014). Although there hadn’t been a minimum wage until 1999, there had been statutory wage floors in many sectors of work in place for most of the century (M.B.Stewart,