Firstly, NMW can release the poverty problem and also greater equity will be achieved.
However, NMW can cause price inflation when an organization goes through higher wages in higher prices. Indeed, those countries where the NMW is relatively cheaper, such as China and India, can sell their products cheaper than UK, so UK can suffer.
As demand contracts, there can be falling employment. If the National Minimum wage rate is higher than market rate, demand will contract and supply will extend.
However, it is proved that paying more money on labour than the market rate would lead to cut jobs. If the NMW is raised until 10% more than its original rate, there would be 1.4% reduction in employment levels. Many economists predicted it is coming event in France, Netherland and Spain.
In UK, there is no significant effect on employment in most sectors and also across the board on productivity. However, every year, government need to balance the demands of both employees and employers. Employees insists to increase their wages more whereas, companies want to decrease the labour cost.
Specifically, the NMW has been effecting lower paid fields such as cleaning, security, social care, hospitality and so on. In those sector, there are many women employees and the policy …show more content…
It affects both big company and small company and the employers all insists that increase in NMW will eventually raise unemployment, critically to companies with small businesses across UK. However, the Fair Work Commission which is responsible for setting minimum wages, refuted. The expert has investigated the correlation between rise in minimum wage and unemployment and said “modest minimum wage adjustments lead to a small, or zero, effect on employment”. British Journal of Industrial Relations also examined the issue and found that there was no employment effect from minimum wage