Focus on the National Minimum Wage

This blog provides some updated links on the minimum wage - a government intervention in the labour market.

The minimum wage is a price floor – employers cannot legally undercut the current minimum wage rate per hour. This applies both to full-time and part-time workers. Labour supply and demand curve analysis can be used to show the effects.

There are three levels of minimum wage, and the rates from 1 October 2009 are:

£5.80 per hour for workers aged 22 years and older
A development rate of £4.83 per hour for workers aged 18-21 inclusive
£3.57 per hour for all workers under the age of 18, who are no longer of compulsory school age

Recent links on minimum wage issues

*Freeze minimum wage to help Britain’s youth stay employed, says CIPD (Telegraph)
*It’s time to raise the minimum wage (Money Week Blog)
*Big ideas: The UK’s National Minimum Wage (Feature article in LSE Centrepiece magazine, Autumn 2009)
* Should we abolish the minimum wage?
* ‘Name and shame’ firms over wages (BBC news)
* Costs hit low-income households (BBC news reporting on research from Joseph Rowntree Foundation)

In the AQA Unit 3 paper, students need to understand the effect of a national minimum wage upon labour markets. Standard labour market analysis can be applied to a wage floor and the analysis can be improved by discussing the importance of elasticity of demand for and supply of labour in causing changes in employment. Key to evaluating the effects of a rise in the minimum wage is to discuss

1/ Equity and efficiency issues, not least the concept of a living wage and the impact of pay floors on relative poverty and work incentives
2/ How businesses respond to a pay floor - do they change prices? What happens to their training budgets? Can businesses use higher minimum pay as a stimulus for raising productivity?
3/ The effects of a pay floor on consumer spending especially for lower income groups
4/ The effects on the government’s welfare bill
5/ Possible impact on inflationary pressures (not necessarily a cause of higher unit labour costs and prices)
6/ Discussions about the size of the minimum wage - e.g. in nominal, real and relative terms
7/ Is the minimum wage flexible at different stages of the economic cycle?
8/ Are there lessons to be gleaned from the experience of other countries?
9/ Alternatives to the minimum wage as a form of intervention
10/ Justifcations for pay floors as a counter-weight to the possible monopsonistic power of employers

From the links mentioned above, the LSE Centrepiece magazine article comes highly recommended.