6.6 - The national minimum wage

What is the national minimum wage?

A minimum wage or wage rate that must by law be paid to employees, though in many labour markets the wage rate paid by employers is above the national minimum wage

What must the minimum wage be above?

Must be above the free market price, otherwise it would be ineffective

What are the benefits the national minimum wage?

- Argued that it reduces exploitation by employers of low paid workers

- Can prevent 'rogue' employers from driving wage rates

- The NMW will yield the positive externalities of a decent wage, which will increase the standard of living of the poorest, and provide an incentive for people to work.

- The government might make more tax revenue, due to more people earning higher wages.

What are the disadvantages of the national minimum wage?

- It could make it harder for young people to find a job, because their lack of experience might not be valuable to firms who are paying more for their labour

- A higher wage could make the country less competitive on a global scale, since they cannot compete with countries that have lower wages.

- Argued that people get reduced hours as a result of the NMW