National Minimum Wage Nmv Description Arguments For Against Economics Essay

October 11, 2017 Economics

A minimal pay is managed by ‘The Department of Labour ‘ through the ‘Fair Labour Standards Act ‘ that allows a minimal hourly rate of wage. ‘The National Minimum Wage Act 1998’ creates a minimal pay across the United Kingdom. National Minimum Wage in the UK is soon & A ; lb ; 5.93 per hr for employees aged 21 old ages and older, & A ; lb ; 4.92 per hr for employees aged 18-20. In 1999 with the purpose to take poorness from the state UK authorities decided the lower limit pay for grownups is & A ; lb ; 3.60, which Government increased over the old ages as per seen from the below chart:

Beginning: Waud ‘s Employment Law, p. 19, 30 March 2011

National Minimum Wage is influenced by many factors one of which is Supply and Demand of Labour. When there is more supply of labor in the market, it is likely that the demand of labor goes down. Supply of labor is elastic, for illustration: as per EU understanding workers from EU states can work in any state in Europe. So if skilled laborer is non available locally, the demand can be fulfilled by migrating labor.

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Beginning: Eyraud, Saget, International Labour Office, The basicss of lower limit pay repair, 30 March 2011

As per seen in the above chart, the equilibrium is achieved at 100 workers working at & A ; lb ; 5 per hr pay rate. This shows demand of 100 workers supplied at the rate of & A ; lb ; 5. Any lessening in demand or supply will be achieved at new equilibrium as shown below:

Beginning: Eyraud, Saget, International Labour Office, The basicss of lower limit pay repair, 30 March 2011

When the pay rate is W2, Q2 workers fulfilling the demand of the labor and that point is equilibrium. But the workers demanded higher pay so rewards go up at W1 which is minimal pay rate, and as the pay rate goes up, market can merely afford to engage Q1 figure of workers so Q2-Q1 is entire unemployed labor in the market.

As the labour minute is free within EU and migration of skilled labor into the UK, increases the migrated skilled supply in the UK which ended up in unemployment. As per below graph from 1993 to 2009, Employment rate – Unemployment rate – Inaction rate is shown. It is for 18-20 old ages old and non in full clip instruction. Unemployment is seen as the mirror of employment rate.

Beginning: LPC estimations based on LFS Micro informations, quarterly, four-quarter moving norm, UK ( 1992-2009 ) , 30 March 2011

Demand of skilled workers can be satisfied within the UK but deficiency of such skilled workers resulted in migrating worker from EU and other states from the universe. But authorities has to offer minimal pay which they are happy to accept and ready to migrate. UK in peculiar deficiency of skilled labor over the past two decennaries, so authorities decided reviews the demand of the market and update national lower limit pay every twelvemonth.


Social Arguments:

Work topographic point equality is my first societal statement. With NMV, Men and Women, acquire paid every bit and non on the gender footing. With equal chances on topographic point, NMV creates a just platform for everyone to acquire the same sum for equal occupations.

Beginning: Working Futures 2004, adapted from table 6.23.2, 30 March 2011

The informations shown above is of random company. Shows how many of male and female are in full clip, portion clip instruction and others are freelance. It has impact on making more public and private sector occupations.

‘The chief purpose of NMW is to take poorness ‘ , societal inequality and unequal wage airing among the populace is the chief cardinal ground to the poorness. In order to split income every bit NMW set by the authorities.

Harmonizing to authorities indicant, NMW had a little positive feeling on public sector financess.

By paying NMW, houses get return in the signifier of better productiveness of employees. Employees are motivated happy as they get paid equal for making same occupation. Skilled employees rewarded with higher rewards.

Increase in income brings more income revenue enhancement to the authorities which is besides used for public benefits.

Economic Arguments

The chief economic statement is increase in net incomes. The NMW chart shows that the income is raise from 2.50 to 3.60 in the twelvemonth 1999. That means workers ‘ get more money at the same clip market ca n’t afford E1 figure of employees. If the demand is inelastic and effects arises from MNW is non higher so gaining of low paid workers should increase.

Beginning: Eyraud, Saget, International Labour Office, The basicss of lower limit pay repair, 30 March 2011

Since 1999, economic growing has averaged 2.5 % in the UK. Means demand for bring forthing goods is more.

As per the below graph, 90,000 occupations were filled by 18-21 twelvemonth olds in October 2001 and employment market is slightly relieve in following twosome of old ages. The chart besides shows the per centum of occupations in the houses paying at or below NMV.

Beginning: LPC estimations based on ASHE with auxiliary information, low-pay weights, UK, 30 March 2011


Social Arguments:

Addition in NMV, makes skilled labors more dearly-won, so makers prefer to bring forth their merchandises outside the state like India, Bangladesh, Malaysia, etc. This manner they pay fewer pay comparative to UK and acquire the merchandise manufactured. This consequences in unemployment as they might shut their current fabrication works in UK and set up overseas.

As UK merely hit by the recession, houses preferred to engage experient employees. Fresher needs clip to acquire familiar with the type of the occupation and might necessitate developing which costs money. Firms recruit experienced workers and cut the clip and money for preparation.

Cost of life is another chief societal point. NMW is for whole UK. Populating cost in London and state side will wholly different. From transit to other disbursals vary from part to part. Worker in London is passing more on life compared to state side worker.

‘Pay-leap frogging ‘ is another concern. As the NMW additions, experient workers demand higher rate of wage in order to keep the spread between NMW and their wage.

As seen in the favour statements, I refer that chart once more here to explicate unemployment caused by the NMW.

Beginning: Eyraud, Saget, International Labour Office, The basicss of lower limit pay repair, 30 March 2011

As per seen in the chart, as the NMW set to & A ; lb ; 3.60. Firms instantly cut their staff from E1 to E2. That means unemployment is created in the market. E1-E2 is the entire unemployment caused by the NMW. Merely E2 is having the NMW, whereas E1-E2 loses their occupations.

At the terminal, it is the consumers who have to bear all these pay rise. End users have to bear all the extra labor monetary values in footings of paying higher monetary value for the merchandise.

Economic Arguments:

During the recession in UK, bulk of the houses cut the hours of the workers. Merely cardinal place workers are non affected by the cuts. Other workers faced immense cut. Besides, late there is issue traveling on for cutting disbursals and cutting defense mechanism forces. As portion of that authorities cut the occupations and besides cut the budget on defense mechanism agencies cuts in the constabulary and other defense mechanism section is presently traveling on.

NMW ever have direct impact on unemployment as per discussed above but it is besides has an impact on the rising prices as per the below showed table:

Addition in the pay measure ( % )

Consequence on RPIX rising prices after one to three old ages

First Year

( % point )

Second Year

( % point )

Third Year

( % point )

















Beginning: Low Pay Commission [ online ] , Available from: hypertext transfer protocol: //, 30 March 2011

As we can see from the tabular array, addition in pay measure ( NMW ) and its impact on the rising prices from one to three old ages.

As per International Labour Organisation statement NMW could non be straight relate to unemployment in the peculiar state. But as I discussed earlier, it shows that it has some sort of direct nexus which shows NMW creates unemployment.


By looking into the favor and against statements of NMW, it is clearly seeable that NMW is required. Lifestyle here in UK is wholly different from India or Bangladesh. To last in the UK, one must gain at least a just sum of the money, so that they can back up themselves here.

That is the society ‘s point of position but from the concern point of position ; NMW is of class fringy cost but it motivates workers and improves productiveness, nevertheless some says NMW is encourages absenteeism but there are many other factors involved every bit good.

Everything has it pros and cons, but after discoursing statements in favor and against, NMW is necessary to set up equal income distribution among the society. Therefore, I am in the favor of NMW.


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