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

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

Extracts from this document...

Introduction

Usamah Chaudhary Paper 4, Topic 4 26th November 2004 Magdalene College What justification is there for the introduction of the National Minimum Wage? The concept of a National Minimum Wage (NMW) was first introduced in the political arena by the Labour Party in their election manifesto in 1992, with the first comprehensive NMW being introduced in April 1999 at 3.60 per hour for workers over the age of 21. The Conservative Party has subsequently endorsed the NMW and thus the NMW has not been a source of major political dispute; however, it is still worth considering the initial justification for the introduction of the NMW in the light of British experience. This analysis will consider arguments specific to the British economy at the time rather than the general benefits of a minimum wage. The first major factor is that of earnings inequality. This widened persistently over the 1980s and 90s, mostly due to a rise in the gap between the top and the median of the earnings distribution as well between the median and the bottom of the earning distribution. Wider wage differentials led to greater inequality in income distribution; in 1995, the highest-paid 10 percent of employees in a profession were, on average, earning up to 3.6 times as much as the lowest-paid 10 percent of employees in the same profession. ...read more.

Middle

On the other hand, increased wages may well result in increased work effort on the part of the employee; thus it is true that in the long run a minimum wage will shift labour to more efficient operations. A fourth point to note is that some form of regulation was crucial in the UK to prevent 'sweating' (whereby workers are paid below subsistence levels) and other forms of worker exploitation. Although it may be argued that workers were left open to such exploitation only when Wages Councils were abolished by the Major government in 1993, the truth is that Wages Councils were never as effective as they should have been anyway. Besides consistently setting too low rates of pay, Wages Councils were not universal in impact, setting minimum rates only for specific industries where low pay dominated and leaving out industries where some form of collective bargaining, however ineffective, existed. This did nothing for low-paid workers and firms that could not participate in collective bargaining due to poor bargaining structures in the excluded industries; it also excluded smaller industries where low pay was known to exist. In addition, union collective bargaining was often ineffective and by the 1980s it was evident that collective bargaining alone could not resolve the problem of low pay. Coupled with this was the policy of labour market deregulation pursued by the Conservative governments throughout the 80s and early 90s. ...read more.

Conclusion

The government may have felt that setting a minimum wage would shift the burden of maintaining minimum income levels off itself (albeit onto employers' pay bill). The NMW thus underpinned the benefits system by setting a minimum level of income; this, in turn, led to increased tax revenue for the government. Another reason for implementing a minimum wage is that it reduces the burden of unemployment benefit on the government. Assuming marginal tax rates for low-paid workers aren't too high, a higher guaranteed minimum level of pay would create incentives for workers to join the labour force, resulting in less people claiming unemployment benefits. In addition, more workers would offer their labour and thus the cost of recruitment, especially for high labour turnover low-paying jobs, would decrease. Thus further justification for the NMW is the reduction of the financial burden on the government through increased participation in the labour market, increased tax revenues and less expenditure on in-work benefits. Thus the NMW was justified on a number of points, ranging from the protection of low paid workers to reducing income inequality to increasing work incentives in the economy. Given the numerous benefits arising from the NMW's introduction and the fact that thus far there have not been any significant knock-on effects on pay differentials or employment, one may conclude that the introduction of the National Minimum Wage was entirely justified. ?? ?? ?? ?? 1 ...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. Measurement of National Income, Strengths and Weaknesses of National Income Statistics.

    GDP counts income according to where it is earned rather than who owns the factors of production. In the above example, all of the income from the car factory would be counted as US GDP rather than German GDP. To convert from GNP to GDP you must subtract factor income

  2. The National Debt

    shares $18,000 of the national debt - - and a child born today will have to pay $187,000 in taxes over his or her lifetime just to pay the interest on the national debt. If we ran our personal finances like the federal government, we'd all be bankrupt.

  1. Advantages and disadvantages of minimum wage.

    In the long term, it ensures that they can afford better basic, medical and educational facilities. This has an effect on the productivity of the nation's labor force. Not only does the minimum wage ensure that workers are paid enough to afford facilities to sustain better standards of living but

  2. Assess the arguments for and against the national minimum wage

    full employment and utilisation of the labour factor is needed. There is truth in the economic principle of parties acting rationally and wishing to maximise their utility. In the labour market this could be applied by using the NMW as an incentive for people to move out of voluntary unemployment

  1. Environmental Analysis Of Landis Lund.

    Workers in mixed economies also contribute to the countries welfare by paying taxes through their wages and purchases. It is in the government's interest to create an economic system that allows businesses to flourish and keep people in jobs. The more workers, the more tax is paid through wages and

  2. Local, national and European economies impact on two contrasting organisations within the UK, Vauxhall ...

    area where he was living, he decided to take action by purchasing the outlet he drank in, which he named Wetherspoons. His first pub offered a good range of cask-conditioned beers in a music-free environment. Twenty years on, the range of beers and the absence of any music, form the

  1. What are the possible impacts of minimum wage legislation in the short-run and in ...

    labour market as shown by letters PC at wage rate W2 and PF at wage rate W0 respectively in Figure 1 (usually a price ceiling as minimum wage is set above the equilibrium level in most cases). Therefore, an imbalance between the supply and demand for labour is created.

  2. Discuss the arguments for and against the UK economy being a low wage economy ...

    The government gains a lot from a high wage economy. A high wage economy means increased spending which results in larger VAT receipts for the government as people are earning higher wages this also results in higher income tax results.

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