Why does Britain need a Minimum wage

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Why does Britain need a Minimum wage? Should its real value be subject to review?

Introduction

The Minimum Wage was introduced into the UK in April 1999 at a rate of £3.60 an hour.  The current rate is £3.80ph for 18-21 year olds and £4.50 for workers aged 22 and over.10 This essay seeks to explore the issues leading to the introduction of a Minimum Wage by the Government, and then to asses the impacts of the value it is set at.  I will then conclude as to whether Britain should have a minimum wage and if its real value should be reviewed.

The introduction of a Minimum wage interferes with the free market (above). It can cause supply and demand not to be equal.  The diagram below shows the case where the minimum wage is set above equilibrium.  The result is unemployment.


The graph above shows the impact of the Minimum Wage on the total employment. The equilibrium employment is at point E1 where the wage rate is W0. When the Minimum Wage is imposed at point W1, total employment falls to point E2.

Why Britain needs a Minimum wage

  1. Bridging the gap between the rich and the poor: Introducing a Minimum Wage so that low paid workers would not earn too little or less than a specified amount to meet their basic needs and allow them to be relatively better off than before the minimum wage rate was introduced.
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  1. Preventing Employee Exploitation:  Employers could exploit workers by paying them far less than they are worth, while making very high profits without restriction.

  1. Improving General Welfare:  If the minimum wage goes up, then workers in the economy may have more disposable income.

  1. 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 that there are still pay differentials between what men and women are earning annually. source: tutor2.net

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