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

Assess the arguments for and against the national minimum wage

Extracts from this document...


Assess the arguments for and against the national minimum wage (NMW) The national minimum wage was introduced in the UK in April 1999 by the Labour government. Essentially it formed a major part of their manifesto as it convinced the average population that Labour were beneficial for everybody. However, they would argue against classical economics and suggest there are wide spread benefits to be gained. The main argument is that the NMW would alleviate poverty across the country. This is an equity issue that has constantly concerned society and would go some way to redistribution of income. It is a social belief that if every one is 'well off' and lives above the poverty line, there will be positive social externalities for all. For example, those living in poverty are usually more susceptible to disease due to poor living standards. This in turn costs the taxpayer money through NHS treatment. Paying those on the low wages higher will help prevent this and the formation of many large impoverished areas, which tend to develop law and order problems like Tower Hamlets, London. ...read more.


The benefits discussed above are for employees but business should also gain for the NMW to be considered a useful tool in the economy. The argument that people's incentive to work is increased also affects business as if people are happier in their jobs, they are less likely to consider leaving. This reduces labour turnover in markets, which is a major cost to business. Recruitment, retraining and the possible renegotiation of higher wages all raise costs for firms on a daily basis and are particularly detrimental for small firms with limited number of employees. Business' will also be encouraged to act in a more responsible way and will increase their human capital. The setting of a universal fee for labour means business will have to compete to employ the best. Overall, this could result in an increase in the quality of labour and their qualifications. Although, firms may not directly benefit from this the increase in labour market competitiveness, there will be a reduction in monopsonist power, which can only be beneficial in the long run. ...read more.


The rise and cost could lead to overall cost-push inflation and the wage-price spiral, as consumers lose their surplus. Whilst the NMW aims to address the wage gap it is not sufficiently targeted and will not affect wage differentials. Some areas will remain in deprivation whilst others prosper. Wage differentials could create a ripple effect where the next higher paid employee wants a higher wage too. Although asymmetry of information means this is unlikely, it is still a possibility it could raise business costs. The effect on public sector finances could be negative. The unemployment created will increase the number of people on benefits. Further more the government will have to abide by it's own legislation, and increase wages in the public sector. Overall government spending will increase. In conclusion the NMW is not ideal for the UK economy. It has had limited success in reducing unemployment however if it was at a higher level, it could prove highly detrimental to business and consumers.. Inflation rates have shown little change as well as long-term unemployment figures. Most importantly is the fact that the people that the NMW aims to help will be most negatively affected if we are to believe classical economics. ...read more.

The above preview is unformatted text

This student written piece of work is one of many that can be found in our GCSE Economy & Economics 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 GCSE Economy & Economics essays

  1. Advantages and disadvantages of minimum wage.

    For example, if a government increases its minimum wage such that its expenditure increases by $8 billion, a cumulative effect is seen. If the Keynesian multiplier is 5, then the aggregate demand is increased by $40 billion (assuming there are no other leakages other than the ones in the formula above).

  2. Measurement of National Income, Strengths and Weaknesses of National Income Statistics.

    C: Household spending (consumption) I: Capital Investment spending G: General Government spending X: Exports of Goods and Services M: Imports of Goods and Services The Income Method (Sum of Factor Incomes) Here GDP is the sum of the final incomes earned through the production of goods and services: o Main Factor Incomes o Income

  1. Retailing In India - A Government Policy Perspective

    The most important incentive for retailers is the market potential and the competitive scenario rather than external factors like incentives. The government can make better use of these funds in the development and modernization of infrastructure. 7.4 Regulating FDI in Retail Even as governments in emerging markets dole out such

  2. Explain the functions of wage differentials in a market economy.

    The ratio of female to male earnings has risen over the period, however it is debatable whether or not a rise of approximately 8% is a "substantial reduction" in the gap between male and female earnings, I believe that an 8% reduction, although helpful is not substantial.

  1. Free essay

    business aims

    Aims and objectives An aim is a long term goal of a business and an objective is a short term target that the business will try and achieve in the time set. Overall, if the business has met its aim it is met its objective.

  2. What are the Academic arguments for and against public body regulation

    > I feel that public body regulation needs to be in place to protect medium sized banks. The big banks know themselves that the government is not going to leave them go bankrupt if they fall into trouble (AIB in 1990) and the smaller banks themselves know this as well.

  1. Why does Britain need a Minimum wage

    Improving General Welfare: If the minimum wage goes up, then workers in the economy may have more disposable income. 4) To reduce pay differentials between male and female workers: Minimum wage may force employers to pay everyone a specific wage rate instead of whatever suits them.5 This graph shows

  2. What justification isthere for the introduction of the National Minimum Wage?

    Although some may argue that high wage earners will aim to maintain their wage differentials, there has thus far been no evidence of a significant knock-on effect. Another argument made in favour of the minimum wage is that an increasing proportion of workers in the UK are paid what is regarded as 'low pay'.

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