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.
These GCSE Economics revision notes have been kindly provided by Peter Davies of Mill Hill School, Ripley
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