National Minimum Wage
Reasons for a Minimum Wage
the incentive for people to work harder and thus higher wages may increase labour productivity. If firms have to pay higher wages, they may put more focus on increasing labour productivity, which increases efficiency of the economy
Increase the incentives to accept a job.
Disadvantages of National Minimum Wage
Fig. 1 A national minimum wage causing unemployment
Fig. 2 A national minimum wage with rising employment.
Supply and Demand for Labour
The Demand for Labour
- There is an inverse relationship between the demand for labour and the wage rate that a business needs to pay as they take on more workers
- If the wage rate is high, it is more costly to hire extra employees
- When wages are lower, labour becomes relatively cheaper.A fall in the wage rate lead to an expansion in labour demand.
The Supply for Labour
- It is the number of workers willing and able to work in a particular job or industry for a given wage
- The labour supply curve for any industry or occupation will be upward sloping. This is because, as wages rise, other workers enter this industry attracted by the incentive of higher rewards. They may have moved from other industries or they may not have previously held a job, such as housewives or the unemployed
- The extent to which a rise in the prevailing wage or salary in an occupation leads to an expansion in the supply of labour.
Assuming labour markets are competitive and that a minimum wage does cause lower employment, the most likely outcome is a negative impact on total demand. People who become unemployed would spend less, leading to lower total demand.
As shown in the graph, above the equilibrium wage, you would expect a fall in demand for labour (Q1 to Q2) and therefore, there would be excess supply of labour (Q3-Q1)