The National Minimum Wage (NMW) (AQA A Level Economics)
Revision Note
Written by: Steve Vorster
Reviewed by: Jenna Quinn
The Impact of a National Minimum Wage
Government's often intervene in the labour market by setting a minimum wage
They do this in order to improve equity & avoid the exploitation of worker
A minimum wage is a legally imposed wage level that employers must pay their workers
It is set above the market rate
The minimum wage/hour often varies based on age
Diagram: National Minimum Wage
A national minimum wage (NMW1) is imposed above the market wage rate (We) at W1
Diagram analysis
The market equilibrium wage and quantity for truck drivers in the UK is seen at WeQe
The government imposes a national minimum wage (NMW) at W1
Incentivised by higher wages, the supply of labour increases from Qe to Qs
Facing higher production costs, the demand for labour by firms decreases from Qe to Qd
This means that at a wage rate of W1 there is excess supply of labour & the potential for unemployment equal to QdQs
Examiner Tips and Tricks
When evaluating national minimum wages, do not assume that they will automatically increase unemployment.
Many studies have shown that unemployment does not increase, and in some instances, employment increases. This is likely due to the fact that workers are receiving higher wages and choosing to consume more. This increases total demand in the economy, which in turn increases the demand for labour by firms, thus reducing/eliminating any potential unemployment.
Advantages & Disadvantages of a National Minimum Wage
Evaluating the use of Minimum Wages
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