National Minimum Wage Essay

(A)

• The National Minimum Wage (NMW) is the minimum per hour wage in the UK, that workers are legally entitled to.

• The current National Minimum Wage rate:

Ages 21 and over → GBP 6.50

Ages 18-20 → GBP 5.13

Ages under 18 → GBP 3.79

The main functions behind its existence in the UK:

1. The consistent decrease in trade union memberships caused the stagnation of wages and the decline in bargaining power of workers, making them vulnerable to low pay.

2. A minimum wage was seen as a method of attacking the issue of poverty, (1980s onwards, there was a marked increase in low income households)

3. A way to reduce the exploitation of employees, support their standard of living and to ensure employee welfare.

4. Economically, it was seen as

2.) The wage rate has a positive correlation with the supply of labour; low wages will provide a dis-incentive for labourers to work. It will negative correlation with its demand, as high wages would be cost inefficient for firms.

3.) The equilibrium wage rate (i.e. Point P1 on the graph), in the labour market is determined by the intersection of the supply and demand curve at Point ‘E’.

4.) A perfectly competitive market would balance out wages higher and lower than the equilibrium wage. At wages higher than equilibrium, the supply of labour will be greater than the firms’ demand, creating a labour surplus. This creates a downward pressure on the wage rate, forcing workers to settle for lower wages, driving down the current wage rate back to equilibrium.

5.) Similarly, at wage rates lesser than equilibrium, the supply of labour will be lesser than its demand, creating a labour shortage. This creates an upward pressure on the wage rate, forcing firms to increase the wages they are offering, thereby driving up the wage rate back to equilibrium.

The equilibrium wage rate is ‘P1’ and the equilibrium quantity of labour is ‘Q1.’ If the NMW was set at ‘BC’, the supply of labour would be ‘Q3’ and the demand would be at ‘Q2’. The difference between ‘Q3’ and ‘Q2‘ shows the labour surplus i.e. unemployment in the market (triangle marked ‘LS’). Since its introduction in 1999, the NMW increased the real and relative wage of low-income workers; it reduced inequality in wages and led to the gender wage gap decrease. Now over 2 million workers receive increased wages in comparison to what they would have received without the NMW. The effect of the NMW on employment was expected to be severe in the low-income sectors (Retail, Hospitality, Cleaning, Textile, etc.) of the economy. Between April 1999 and March 2006, the employment in these sectors rose from 6.3 to 6.7 million and their employment share in the economy remained 26%. Textile and Clothing and Footwear were the only sectors to show a reduction in their employment share. However, this reduction is attributed to the long-term decline of the sectors, there is no evidence that this decline is an effect of the introduction of the NMW. This shows us that the introduction of the Minimum Wage in UK did not bring about distinct change in the employment level in the low-income sectors of the