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Discuss the possible effects of increasing the minimum wage from the current £4.85 to the level of £5.30 as recommended by the Trade Unions Council (TUC) and of the Europeans Commissions proposals to limit the length of the working week.

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Discuss the possible effects of increasing the minimum wage from the current �4.85 to the level of �5.30 as recommended by the Trade Unions Council (TUC) and of the Europeans Commissions proposals to limit the length of the working week. The efficiency wages hypothesis defined by John Sloman (2004, p179) "states that the productivity of workers rise as the wage rate rises." In business, the efficiency wages are set where they maximise the profitability of the workforce to improve morale, reduce labour turnover and have employees working harder because it will be costly for the worker if they were to be dismissed due to the high pay levels. The increase in minimum wage will have different impacts depending on the type of market. In perfect competition, the firms are price takers so they cannot change the price of the products as they are homogeneous. If they cannot increase their profit margin by raising the price then they are forced to cut costs in order to survive as other firms will also be looking to cut costs. ...read more.


If employees were not able to keep their pay differential they may seek employment elsewhere and which may possibly force the company to comply and offer the wage they want, especially in specialised industries. A higher national minimum wage will not take into account the geographical differences of each region and it is said that employers should pay for a fair days work so the possible solution would be to instead of increasing the national minimum wage, it would be reasonable to suggest that setting a national minimum income would reduce poverty and in the population offer a more equal distribution in income. So although increasing the national minimum will increase production costs for businesses, this is only in the short run as in the long term businesses can benefit from lower labour turnover, increase in productivity and reduction in people absent which for small businesses is very expensive. According to Ashley Seagar (The Guardian, 2004), "the length of the average working week in Britain has fallen to an all time low." However the Trade Union Congress (TUC) has said although the number of hours working for each worker is decreasing, it is not decreasing fast enough. ...read more.


The main reasons people work extra hours are for overtime and to manage their workloads but if asked they would like to work shorter hours however some say they need or want to work extra hours. Both the minimum wage and the average working week are intertwined. If a higher wage was offered then people could work fewer hours if wished, this reduces stress, improves the health of the worker and the state of the company. Offering a higher wage rate might mean that it is an incentive for the workers to put in more hours to improve their overall income which is an improvement for low paid workers. Companies may seek other options to minimise costs for example replacing employees with machines leading to an increase in employment. Also with a reduction in the working week and the increase in the minimum wage, it will be an incentive to improve productivity of the company in order to get the job done quickly and efficiently, this would reduce the cost of paying workers overtime and so not increasing production costs. Depending on each individual worker will determine the extent of the effects increasing the minimum wage and reducing the working week will have. ...read more.

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