Assess the likely impact of an increase to the minimum wage on the UK labour market.
(9 marks)
The minimum wage is effectively a price floor in the labour market, being the least possible
wage that an employer can legally pay its workers. Its main purpose is often to increase equity
and disable the exploitation of workers, allowing workers better living standards. Since its
introduction in 1998, the minimum wage has not increased unemployment in the UK, however
many argue that it is still too low, and far from other measures like the Real Living Wage.
Theoretically, if a government was to raise the minimum wage then business costs would
increase as firms have to pay their workers more. This then leads to unemployment, as firms
reduce the size of their workforce in order to cope with the increased costs. Low skilled workers
are in elastic supply and are typically the most affected by any changes to the minimum wage.
This means that they are easily made redundant when wages increase, because their lack of
skills means they have no power to exert over the market. As shown in the diagram below, a
minimum wage cuts the labour supply at a higher point than it does the demand for labour, so
the level of real wage unemployment created is the difference between Qs and Qd.
On the other hand, a minimum wage can increase the incentive to work, boosting productivity
and growth. In addition, those earning more through an increased minimum wage are likely to
(9 marks)
The minimum wage is effectively a price floor in the labour market, being the least possible
wage that an employer can legally pay its workers. Its main purpose is often to increase equity
and disable the exploitation of workers, allowing workers better living standards. Since its
introduction in 1998, the minimum wage has not increased unemployment in the UK, however
many argue that it is still too low, and far from other measures like the Real Living Wage.
Theoretically, if a government was to raise the minimum wage then business costs would
increase as firms have to pay their workers more. This then leads to unemployment, as firms
reduce the size of their workforce in order to cope with the increased costs. Low skilled workers
are in elastic supply and are typically the most affected by any changes to the minimum wage.
This means that they are easily made redundant when wages increase, because their lack of
skills means they have no power to exert over the market. As shown in the diagram below, a
minimum wage cuts the labour supply at a higher point than it does the demand for labour, so
the level of real wage unemployment created is the difference between Qs and Qd.
On the other hand, a minimum wage can increase the incentive to work, boosting productivity
and growth. In addition, those earning more through an increased minimum wage are likely to
