Arguments On The Minimum Wage In Uk Economics Essay
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Published: Mon, 5 Dec 2016
A minimum wage is the lowest hourly, day by day or monthly wage that employers may lawfully pay to employees or staff. Equivalently, it is the lowest wage at which employees may sell their employment. Although minimum wage laws are in effect in a great many jurisdictions, there are differences of view about the profit and drawbacks of a minimum wage. followers of the minimum wage say that it increases the standard of living of workers and reduces poverty. Opponents say that if it is high enough to be effective, it increases unemployment, particularly among workers with very low productivity due to innocence or handicap, thereby harming lesser skilled workers to the benefit of better skillful staff.
SUPPLY AND DEMAND
When supply and demand are equal (i.e. when the supply function and demand function intersect) the economy is said to be at equilibrium. At this point, the allocation of goods is at its most efficient because the amount of goods being supplied is exactly the same as the amount of goods being demanded. Thus, everyone (individuals, firms, or countries) is satisfied with the current economic condition. At the given price, suppliers are selling all the goods that they have produced and consumers are getting all the goods that they are demanding.
As you can see on the chart, equilibrium occurs at the intersection of the demand and supply curve, which indicates no allocative inefficiency. At this point, the price of the goods will be P* and the quantity will be Q*. These figures are referred to as equilibrium price and quantity.
In the real market place equilibrium can only ever be reached in theory, so the prices of goods and services are constantly changing in relation to fluctuations in demand and supply
ARGUMENT AGAINST THE MINIMUM WAGE IN UK
If labour markets are competitive a minimum wages could cause unemployment.
Diagram of Minimum Wage
In the above diagram the national minimum wages has caused unemployment of Q1 -Q2
A minimum wages can cause cost push increase. This is because firms face an increase in expenses which are estimated to be passed on to customers. This is even more likely if wage differentials are maintained.
A minimum wage may increase the No. of people working on the black marketplace.
A limitation of the minimum wage is that it doesn’t increase the incomes of the poor income groups. This is because the poorest have to rely on profit and are therefore not effected by the minimum wages.
Also many who advantage from the min wage are next income earners and therefore the household is incredible to be below the poor quality line. A household with a single income earner just above the min wage is likely to be relatively poorer.
A minimum wages set above the free-market wage for certain groups raises the marginal cost of employing people – so firms will cut jobs, reduce hours of work for employees and unemployment will increase
Other workers will demand higher wages to maintain pay differentials (this is known as “pay leap-fogging”). An increase in the total wage bill may cause cost-push inflation and damage the price competitiveness of UK producers in global markets
Youthful and low-skilled workers will lose out – firms will tend to employ mature workers whose knowledge is greater. There will be a substitution effect that works against younger participants in the labor market
Some firms may cut back on investment in worker training because of lessening profits
A minimum wage will not ease poverty because many poor households do not have a low-income earner. Poverty is concentrated in those groups where no one is in paid employment. A minimum wage has little direct effect on these households – better to introduce a minimum income guarantee
A national minimum wages does not take into account regional differences in cost of living and will have a distortionary effect on the way the UK labour market works
ARGUMENT IN FAVOUR OF THE MINIMUM WAGE IN UK
On the supply side the higher wage will encourage existing employees to supply more labour, or it will encourage workers out of voluntary unemployment
For example, a minimum wage of £5.00 would create a contraction in demand to Q1, but supply would extent to Q2 as more low skilled workers are encouraged to look for work, creating unemployment of Q1 – Q2.
Reduce Poverty. The minimum wage Increases the wages of the lowest paid. These workers will have an increase in income and this will reduce poverty.
Increase productivity. The efficient wage theory states that higher wages can increase the incentive for people to work harder and thus higher wages may increase labour productivity.
Increase the incentivess for the unemployed to accept a job. There will be a bigger difference between the level of benefits and the income from employment. A minimum wage could increase the participation rate as the benefits of work become greater.
Increased Investment. Firms will have an increase incentive to invest and increase labour productivity because labour is more costly.
Counterbalance the effect of Monopsony employers. If firms have Monopsony power they can drive wages down by employing less workers. However, minimum wages will make this more difficult. Therefore a minimum wage could have a positive effect on employment.
It is good for our nation. A strong minimum wage helps reduce the gap in incomes between the poor and the wealthy in UK. When such a gap becomes too wide, our democratic values are threatened, for the freedoms to vote, speak out on public issues, and enjoy a stable and open society are not meaningful for those who are worn out by struggles for the basics of life.
The most commonly heard objection to minimum wage increases continues to be that small business owners, facing an increase in labor costs, will need to reduce employment and might be forced to close their doors. But a growing number of studies show that this scenario overlooks the flexibilitiy of employees and employers when the minimum wage changes. Studies note that states that increase their minimum wages have stronger job growth compared to states where the minimum wage is static. And the risk of business failure does not increase when the minimum wage does. –Brock Haussamen; revised October 2009
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.
NATIONAL MINIMUM WAGE INCREASES
March 26 2010 – Changes to national minimum wage rates will take effect from October 1 2010:
The adult (aged 21 and over) minimum wage rate will increase from £5.80 to £5.93 an hour
The Youth Development Rate (18-20 year olds) will rise from £4.83 to £4.92 an hour
The minimum wage for 16-17 year olds will increase from £3.57 to £3.64 an hour
Apprentice pay will also be covered by the minimum wage framework for the first time with a new apprentice rate of £2.50 an hour. The new rate will apply to those apprentices who are under 19 or those that are aged 19 and over but in the first year of their apprenticeship. The Low Pay
Trend extrapolation is only one part of technological forecasting. This tool must be used carefully, for the past is an indication of the future only when the environmental structure of the past remains constant in the future. If one can indeed assume that no changes have taken place then there are a series of models available for trend by extrapolation. All such models deal with empirical data, and this article has attempted to suggest some methods that will provide the forecaster with the capability to develop a data base
It is generally accepted that there are different trends, the most important of which are shown schematically:
Linear Trend. It increases or decreases over time at constant absolute rates of change according to the basic formula:
Y = a + b X
Where Y = the variable analyzed, a = the initial value of the trend (at x = 0), b = the absolute change of y per observation period, and X = the time unit (year, month, quarter, etc.), whereby x = 0 at the starting point and the time units are continuously updated (1, 2, 3, … n).
Exponential Trend. This trend increases or decreases at constant percentage rates of growth (b), according to the formula:
Log Y = a + b log X
On a logarithmic scale this trend is linear.
Parabolic Trend. It is consistent with the formula:
Y = a + b X + c X2
This trend has the tendency of initially increasing or decreasing only slightly and then more and more so with time. The reason for this is parameter c, which due to multiplication with the squared time unit adds an increasingly strong upward or downward ‘slant’ to the trend.
Logistic Curves, Growth Curves. This trend is usually S-shaped, i.e., moving from an initial phase into a dynamic phase in order to then enter into a new (stationary) equilibrium phase again in the end. It is consistent with the formula:
Y = a / 1 + ea-bX + b
Life Cycle Curves. They follow at first a growth curve trend. In a subsequent period the curve takes a downturn again. Its trend is consistent with the formula:
Y = a / 1 + ea-bX + ed-cX
Growth theory frequently operates with such depictions of trends. The difference between the logistic trend, moving towards saturation, and so-called ‘life cycle curves’ is that with the latter – similarly to nature – no new stationary (equilibrium) phase occurs, rather a downturn or waning of the variable in question. These curves are sections of frequency distributions, meaning that both approaches are closely connected or represent a transformation.
Ultimately, all growth is limited, and there is an absolute limit to progress, either recognized or unrecognized. Sooner or later, projections must reflect the fact that improvements may get close to this limit but cannot exceed it. For instance, a trend of increasing energy conversion efficiency cannot eventually exceed 100 percent. Example, the lowest temperature achieved in the laboratory is presented in Figure 2. The trend of lower and lower temperatures is limited, of course, by absolute zero. (It is interesting to note the rapid improvement in the ability to produce low temperatures that occurred around 1900.)
If the present level of technology being forecast is far from its theoretical extreme, extrapolation may not be unreasonable. If, however, a current technology is approaching its limit, and if this is not recognized, projections of past improvements may seriously overestimate future accomplishments.
The idea behind consensus methods is to combine different solutions to the same problem into one solution, i.e., group decision making. Group decision making is as old and as ubiquitous as human societies. The formal theory of voting and social choice dates back to the eighteenth century members of the French Academy of Sciences, Marquis de Condorcet (de Caritat marquis de Condorcet 1785) and de Borda (de Borda 1784). The modern developments in the field date
back to Kenneth J. Arrow’s seminal doctoral thesis (Arrow 1963) in 1951.
In the past fifteen years the mathematical and computational techniques developed in the context of group choice and consensus decisions have started to be applied to biological problems, mainly in systematics, taxonomy, and phylogenetics (Janowitz et al. 2001). Many computational approaches to biological problems result in multiple answers either from the same or different methods. In absence of a verifiable true answer, as is common in biological problems, one may apply a consensus method to combine these solutions into one representative answer.
(a) Presentation of the four data sets and their relationships. (b) Schematic representation of the study design
Energy & Metals Consensus Forecasts is the result of a comprehensive quarterly survey of over 30 of the world’s most prominent commodity forecasters covering over 25 individual commodity price forecasts including steel. The only publication of its kind, Energy & Metals Consensus Forecasts contains detailed consensus and individual analyst price forecasts for the next 10 quarters as well as the long-term outlook The commodities covered have been selected for their global appeal and traded on prominent futures markets such as the London Metal Exchange (LME), New York Mercantile Exchange (NYMEX) and InterContinental Exchange (ICE). The steel price forecasts below are for US and North Europe hot rolled coil steel.
Spot Price US$553.0/short ton
% Change from spot
IHS Global Insight
Hot Rolled Coil (North Europe, Domestic) Forecasts From Survey of October 26, 2009
Spot Price US$611.0/metric tonne
% Change from spot
IHS Global Insight
Econ Intelligence Unit
The tables above show a portion of steel price forecasts taken from the October 2009 issue of Energy & Metals Consensus Forecasts.
To conclude that demand and supply of minimum wage should be appropriate in which U.K government can justify and evaluate labor market and set minimum wage. Trend exploitation and consensus forecast method can help company to forecast data in which company can make proper decision and try to fulfill long term goals.
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