• Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

Economics - Suppose a Government wishes to raise the incomes of the working poor.

Extracts from this document...

Introduction

Economics Suppose a Government wishes to raise the incomes of the working poor. It suggests the raising of the minimum wage. Use the demand and supply framework to evaluate the effect on the wage for unskilled workers, and the number of workers in employment and on the unemployment register. Discuss how demand and supply elasticities may effect these changes, both in the long-run and short-run. In the light of your discussion, do you believe the policy can be effective in meeting the Government's goal? In October 2002, the Government put forth a new level for the minimum wage: �4.20 per hour for 22 year olds and over and �3.60 for the under 22 year olds. If the Government was to raise this minimum wage it would be to reduce poverty amongst the working poor, but this wouldn't necessarily happen. Other consequences would occur, firms would have to choose whether to employ at a higher price or not. This means that firms would have to compare paying higher prices on workforce with alternatives, such as machinery, and therefore demand elasticities will be affected. ...read more.

Middle

This means that they will have to reduce the number of employees because the increase of wage will be used on the new machine, so unemployment increases. However, this isn't possible for all enterprises, there are some that rely on human capital and can't replace it with machinery, such as cleaners or catering staff. There isn't yet any technology that can replace a hotel room cleaner, so when the minimum wage increases it can't have any effect on these jobs, the amount of people employed will stay the same. Another alternative for firms when the minimum wage increases could be that they would rather employ workers with higher qualifications for a similar wage to the level at which the new minimum wage will be set at. This would mean that all of the employees that were working poor will be dismissed, and would have terrible consequences on the level of unemployment. One last possibility for firms who want to get around the problem of paying higher wages would be to delocalise there enterprise. Many enterprises have already done this, especially in the clothing sector. Firms, for example Nike, have moved from the USA to Taiwan where the price of labour is much cheaper. ...read more.

Conclusion

The same will happen with the elasticities of supply of labour, it will take a certain amount of time before people can insert themselves into the workforce because, for example, it takes time to find a job. This means that in the short-run elasticities regarding the supply of labour will be low, but in the long-run will be high since these changes will have had the time to occur. If the Government was to raise the minimum wage it would be to reduce poverty amongst the working poor, trying to maintain employment at the same rate if not increasing it. Keynes would approve of this Government's choice, but the Classicals wouldn't, claiming that it would lead to classic unemployment (Kregel, Matzner & Roncaglia, 1988). Whether or not this policy would work has been explained above, showing two different points of view. However, it is important to observe that with the economic crisis of the 70's and 80's, governments in Britain, France and the USA used Keynesian politics to help the growth of employment, and they proved to be unsuccessful. Because of this inefficiency, we saw the liberal thoughts coming back into the governments, with M.Thatcher in Britain, Mitterand in France and Reagan in the USA, to try to remedy this situation. It was in this context that globalisation started developing. ...read more.

The above preview is unformatted text

This student written piece of work is one of many that can be found in our AS and A Level Macroeconomics section.

Found what you're looking for?

  • Start learning 29% faster today
  • 150,000+ documents available
  • Just £6.99 a month

Not the one? Search for your essay title...
  • Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

See related essaysSee related essays

Related AS and A Level Macroeconomics essays

  1. Budget 2004-05 and Economic Analysis of Pakistan

    * Public sector investment improved to 4.6% of GDP, while private sector investment rose to 11.7% of GDP. * National savings as a proportion of GDP was around 20%, while domestic savings stood at 17.8% of GDP. * While cotton production was lower over the preceding year, the other crops; rice, sugarcane and wheat showed increase in output.

  2. To what extent does the government budget/statement reflect current government priorities?

    looking at the government's main aims and objectives and comparing whether the money they are spending on each one is reflecting that; for example if in public order and safety the government wanted to initiate huge crackdown on underage drinkers and vandalism then surely the money spent in that area would be increased dramatically.

  1. Governments set economic objectives - Discuss the relative importance of each of these objectives ...

    Inflation brings menu costs. Restaurants and shops will have to change their prices, and firms will have to calculate new price lists in order to receive the equivalent real income. There will also be changes to fixed capital [e.g. vending machines, parking meters] to take into account the increased prices.

  2. Indian Economics

    = National Income/ Population. National Income refers to the money value of all the goods and services produced in an economy in one accounting year. The Growth of National Income during the planning period is as follows:-- Plan Duration % Growth of National Income* 1 1951-1956 2.1% 2 1956-1961

  1. Discuss the view that minimum wage legislation leads to unemployment. Has this been the ...

    Fig.2 Source: Labour Market Trends: Unemployment Rates - www.statistics.gov.uk The data is inconclusive in that there are no marked changes as a result of the NMW. The data reflects more than just the introduction of the minimum wage. It is noticeable that the rate at which unemployment is falling is slower after quarter 2 of 1999.

  2. Suppose a government wishes to raise incomes of the working poor. It suggests the ...

    This signalled the UK joining other countries such as Australia, America, Japan and many European nations in setting a minimum wage (Low Pay Commission, 2000). Since this policy was introduced, the numbers of people in jobs paid below minimum wage has dropped from 6% of the UK workforce in April

  1. Evaluate the polices the government should adopt if it wishes to achieve a low ...

    A way the government could over come this problem and get more people employed is by offering them training courses. Lack of education is a very common cause of unemployment. Another possible cause of unemployment is structural changes in the economy.

  2. Various Macro-Economic Questions and answers

    By 16th Mar (ARG) What is meant by aggregate supply? Aggregate supply is the total amount of supply in the economy, throughout the country by all economically active people in the population. What is ?the short run? when discussing aggregate supply?

  • Over 160,000 pieces
    of student written work
  • Annotated by
    experienced teachers
  • Ideas and feedback to
    improve your own work