Arguments for and Against the Minimum Wage in the Uk

Arguments for and against the National Minimum Wage (NMW) in the UK stop employees being taken advantage of by being salaried unfair locks by their employers. set a standard of the borderline worth of a worker. This benchmark was set so that employers would be unable to lock any staff for less than the suggested moly rate. reduce pay differentials between genders. What is the new minimum wage? In October 2009, the NMW for workers amplificationd from ?5. 73 to ? 5. 80 per hour time-honored 22 years and older ?4. 77 to ? 4. 83 per hour aged 18 to 21 years ?3. 53 to ? 3. 7 an hour aged 16 and 17 years As of October 2010, the adult minimum rate will start from 21 years. Who qualifies for the Minimum Wage? Home workers, agency workers, underemployed employees, pieceworkers most adult employees working legally in the linked Kingdom with a written, verbal or implied contract, qualify for the NMW. The relationship between Demand and try Arguments in favour of the NMW plat showi ng potential earnings from the NMW draw pull up Diagram showing increasing involve for Normal goods drawframe Reduced labour turnover, raised productivityEconomic eudaemonia for the country Monopsonistic labour markets A monopsony occurs when iodine purchaser faces many sellers in a market. The buyer thus controls a large proportion of that market sh atomic number 18. In the diagram below, a monopsonistic business maximises its profits at Q2, paying a wage at W1. (Demand = Marginal Revenue Product and go forth =Average Costs). If the minimum wage increases to W2, demand for labour will increase to Q1. The direct of unemployment will not increase until the minimum wage increases to an amount higher than W3. Diagram showing NMW effects on a Monopsony drawframe Arguments against the NMW Law not properly obligate The NMW is not a properly enforced law. The result is that is has merely become a guideline to which employers are expected to adhere. It is estimated that 5% of the UK workforce receives less than minimum wage (WordPress 2009). If an employee reports his employer for paying less than the minimum wage, the employee pays a nominal fine. Fines are not severe enough (HM Revenue and Customs 2009). Low-skilled workers suffer Many irrelevant the NMW when it was first introduced.Some believed that it would increase unemployment and cause wage inflation. They argued that if the minimum wage was high enough to be effective, unemployment among the inexperienced and handicapped would escalate. The workers with lesser skills would be harmed to the benefit of those who were more highly skilled. The demand for jobs at the higher wage levels would be greater than the cut of jobs available. Businesses could therefore afford to be more selective in the employees they chose, and workers with limited skills and experience would typically be excluded.Cost of takings increases, leading to higher prices for consumers Another argument is that an increase in the minimu m wage willincrease production costs, thus increasing the overall cost of the product. The result of this would be trim profits for the business, due to producers absorbing the extra costs, leaving less money for re-investment. Diagram showing how an increase in the price of a product affects supply and demand drawframe The original price of product X is ? 35, and the demand for the product is 320 units (E1 representing Equilibrium between demand and supply). Product X then increases in price to ? 4 due to an increase in the NMW, resulting in a drop in demand for the product to 120 units. This drop in demand then results in an oversupply of goods from the producer, who is then forced to reduce his supply to the new demand level, or goods may sit on the shelf. E2 represents the new Equilibrium level between supply and demand. If the good was perishable and the supplier did not adjust his supply, there would be a lot of wastage. Not everybody qualifies Those who are exempt from recei ving the NMW include Apprentices under 19 years of age, and apprentices 19 years or older in their first year of their apprenticeship.Students on a work placement, forming part of a higher- or further education course, where the placement is for less than one year. The self-employed Those on a Department for Workers and Pensions back-to-work scheme The Recession A recession is characterised by a period of at least two concomitant shadowers of negative growth. During a recession, demand and supply of goods and services in the economy contracts. The UK economy contracted by 1. 5% in the last quarter of 2008 and the Gross Domestic Product experienced its biggest fall since the second quarter of 1980 (Kowelle 2009).This is the first time since the inception of the NMW that employment has fallen. Unemployment is rapidly on the increase. A simplification in output means that the need for labour is reduced. In the early stages of a recession, companies tend to cut back on employee hours , rather than making workers redundant. If companies are forced to reduce their employee numbers, they will initially attempt to do this through natural wastage, putting a hold on hiring, and not replacing workers who permit the company of their own accord.Thus the demand for new entrants to the market is very limited. The current recession has caused a very limited availability of credit and reduced demand worldwide. It is expected that high levels of debt and the fall of housing prices and equity prices will affect the UK more than many other nations (Bain 2009). What if there were no minimum wage in place? Without a set minimum wage, the quantity of labour supplied will continue to change according to price, until the level of labour demanded is equal to the level of labour supplied.That is to say, an equilibrium price will be reached, where supply and demand curves intersect. drawframe Deepak Lal, criticises the minimum wage, stating that it is an inefficient, well-intentioned but inexpert interference with the mechanisms of supply and demand.. References DEPARTMENT FOR BUSINESS INNOVATION & SKILLS. , 2007. National Minimum WageGuide for Employees online United Kingdom. Available from http//www. berr. gov. uk/files/file53059. pdf Accessed 23 November 2009 eHOW How To Do Just About Everything.How Does The Minimum Wage Affect The miserliness online video. Available from http//www. ehow. co. uk/video_4974004_minimum-wage-affect-economy. html? cr=1 Accessed 20 November 2009 NATIONAL MINIMUM WAGE COMMISSION. , 2009 National Minimum Wage. Low Pay Commission Report 2009. (Chairman George Bain). United Kingdom The Stationery Office. WORD PRESS. , 2009. New Deal Scandal UK Unemployment Course Scandal and Welfare Reformconcerns online 20 August. Available from http//newdealscandal. wordpress. com/2009/08/20/national-minimum-wage-nmw/ Accessed 23 November 2009