6.6

• National minimum wage definition

  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
• the minimum wage has to be set above the free market price, just like other minimum prices, otherwise it would be ineffective
• What is the difference between the NMW and the national living wage (NLW)?

  • NMW applies to younger workers under a certain age
  • NLW is A higher rate and applies to workers aged 21+ (as of 2024)
  • Both are legally binding
• what is the main aim of the NMW?

  • to reduce labour market exploitation
  • increase fairness
  • help reduce poverty and income inequality
  • encourage work over welfare
• what is the potential positive impact of the NMW?

  • increases income for the lowest-paid
  • reduces poverty and boots morale
  • can increase worker productivity
  • reduces wage inequality
  • reduces exploitation of low-paid workers
• what is the potential negative impact of the NMW?

  • increases wage costs for firms
  • can lead to unemployment if firms hire fewer workers
  • could raise prices (cost-push inflation)
• what is the effect of a minimum wage in a monopsony labour market ?

  in a monopsony, a minimum wage can increase both wages and employment by preventing the employer from exploiting workers
• what determines the impact of the NMW on employment?

  • elasticity of demand for labour
  • how far above the equilibrium the NMW is set
  • the age and skills of workers affected
  • market structure (competitive vs. monopoly)
• who are the main ‘winners’ of a minimum wage policy?

  • low-paid workers who keep their jobs
  • government (via less welfare use)
  • workers with increase productivity
• who are the main ‘losers’ of a minimum wage policy?

  • employers facing higher costs
  • low-skilled workers who may lose jobs
  • consumers (if prices rise)
• what is wage compression and how does it relate to the NMW?

  wage compression occurs when the NMW pushes up lower wages, reducing the gap between low and mid level earners - sometimes causing resentment or demotivation among more skilled staff
• 18-24 year old unemployment rate has risen form 11.5% in April 1999 (when NMW introduced) to 17.9%