The national minimum wage

The role of the NMW

To achieve more quitable distribution of income by raising the wages of those on very low pay. Aiming to reduce poverty and to help workers escape unemployment trap, with an incentive to work.

Arguments for NMW

• Alleviate poverty

• Male-female wage differentials are reduced

• Offers greater incentive to work

• As workers escape unemployment trap, they generate tax revenue, and lower gov bill for benefits

• Workers recieve moral boost for recieving more pay, so more productive workers

• Help reduce labour turnover as workers are less likely to seek employment elsewhere

Arguments against NMW

• May lead to a loss of jobs as NMW will be set above equilibrium, so less labour demand. Worse in elastic markets

• Unemployment may disproportionally affect young workers as less experience makes them less productive. So their NMW is set lower.

• Many workers on low wages are second wage earners in a family, so doesnt help alleviate poverty as mediun income families are gaining an income boost.

• As people on NMW rise, workers not on it may ask to have a pay increase, causing inflationary pressure, reducing the value of NMW.

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