ADVANTAGES OF THE MINIMUM WAGE
- Fair for workers to be paid a minimum wage. - Helps low earners gain a higher standard of living- Extra disposable income should lead to extra spending in the economy- Helps increase the gap between wages for low earners and unemployment benefit- May help reduce unemployment
DISADVANTAGES OF THE MINIMUM WAGE
- Increases the cost to businesses-Businesses may increase their prices (cost push inflation)- Businesses may be unable to afford to employ as many workers- Could cause unemployment- Other workers may now ask for a pay rise- Doesn’t help the unemployed who don’t receive a wage
In the diagram above, £3.80 is the free market equilibrium wage, supply is equal to demand. At this point 1000 people are employed.
Imagine that a minimum wage is imposed at £4.20. Some businesses can’t afford their wage bill and reduce their workforce. Now only 750 workers are employed. 250 have become unemployed.