Discuss arguments for and against the UK's minimum wage policy. Under what conditions is it possible that a minimum wage might actually increase employment?

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Dorothy Pinkney

Economics 1

Microeconomics and International Trade

Discuss arguments for and against the UK's minimum wage policy. Under what conditions is it possible that a minimum wage might actually increase employment?

The Labour government in 1999 introduced the minimum wage to provide social protection to low echelon workers from being exploited by firms. The minimum wage makes it illegal to pay an employee less than a specified hourly rate. However, by looking at economic models and imperial evidence, it is evident that restricting the labour market creates some negative effects. It is also possible to see how the minimum wage could be increasing employment with the theory of monopsy power.

The main argument against the minimum wage policy is that it creates a surplus of labour which results in increased unemployment. In the competitive labour market, the policy raises the incomes of workers whose free market equilibrium wage is below the minimum wage. In a competitive labour market, profit-maximising firms are looking to employ cheaper labour to keep costs of production down. The free market equilibrium is where the supply of labour is equal to the demand from the market. The competitive firms want