The national minimum wage was introduced in the UK in April 1999 by
the Labour government. Essentially it formed a major part of their
manifesto as it convinced the average population that Labour were
beneficial for everybody. However, they would argue against classical
economics and suggest there are wide spread benefits to be gained.
The main argument is that the NMW would alleviate poverty across the
country. This is an equity issue that has constantly concerned society
and would go some way to redistribution of income. It is a social
belief that if every one is 'well off' and lives above the poverty
line, there will be positive social externalities for all. For
example, those living in poverty are usually more susceptible to
disease due to poor living standards. This in turn costs the taxpayer
money through NHS treatment. Paying those on the low wages higher will
help prevent this and the formation of many large impoverished areas,
which tend to develop law and order problems like Tower Hamlets,
London. At the time of introduction the rate was set at £3.60 and
affected 2million workers, around 9% of the workforce at the time. The
Labour government would use these figures to support the introduction
of the NMW and evidence that it works.
The UK did not have a large unemployment issue at the time of
introducing the legislation and the figure has been around 1 million
for a few years. However to increase the nations overall allocative
efficiency (approach a national PPF) 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 th...
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...try of information means this is
unlikely, it is still a possibility it could raise business costs.
The effect on public sector finances could be negative. The
unemployment created will increase the number of people on benefits.
Further more the government will have to abide by it's own
legislation, and increase wages in the public sector. Overall
government spending will increase.
In conclusion the NMW is not ideal for the UK economy. It has had
limited success in reducing unemployment however if it was at a higher
level, it could prove highly detrimental to business and consumers..
Inflation rates have shown little change as well as long-term
unemployment figures. Most importantly is the fact that the people
that the NMW aims to help will be most negatively affected if we are
to believe classical economics.
Explanation:
