Essay on The Demand Of A Legal Minimum Wage

1220 Words Nov 16th, 2015 5 Pages
Using supply and demand diagrams examine the likely economic effects of the imposition of a legal minimum wage. Discuss the reaction of the business community in the UK to the announcement of a national living wage which will be phased in during the next five years.

Minimum wage is the minimal pay per hour that all employees are entitled to by law. However the national minimum wage can differ depending on the age of the employee. No matter how small or big the company is, it is mandatory for the employers to play their workers according to the minimum wage. Whereas the national living wage is an hourly amount set independently and to is revised annually. It is determined according to the primary cost of living in the United Kingdom. The long term objective of the national living wage is to extinguish the dispute of poverty pay.

When the minimum wage is imposed by the government, firms are not authorised to pay anything less than the rate that the government has decreed. Based on the graph below, if the national minimum wage is more than the equilibrium wage for a specific job, the demand for it will decrease, thus causing the supply to increase. However, due to the reduction in demand for labour when wages rise, the amount of workers who will lose their jobs will be of a significant amount. On another hand, when wages inflate, the supply for labour will tend to escalate as well, causing labourers who were not initially employed to want a job, being that the minimum wage…

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