gcse economics - how we work- minimum wage

Each working person is guaranteed a minimum wage for work in the UK. It is illegal for an employer to pay a figure below this. The minimum wage is different for under 21’s and over 21’s.

ADVANTAGES OF THE MINIMUM WAGE

- Fair for workers to be paid a minimum wage.
- Helps low earners gain a higher standard of living
- Extra disposable income should lead to extra spending in the economy
- Helps increase the gap between wages for low earners and unemployment benefit
- May help reduce unemployment

DISADVANTAGES OF THE MINIMUM WAGE

- Increases the cost to businesses
-Businesses may increase their prices (cost push inflation)
- Businesses may be unable to afford to employ as many workers
- Could cause unemployment
- Other workers may now ask for a pay rise
- Doesn’t help the unemployed who don’t receive a wage

In the diagram above, £3.80 is the free market equilibrium wage, supply is equal to demand. At this point 1000 people are employed.

Imagine that a minimum wage is imposed at £4.20. Some businesses can’t afford their wage bill and reduce their workforce. Now only 750 workers are employed. 250 have become unemployed.