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Debates on the UK minimum wage

Info: 2119 words (8 pages) Essay
Published: 21st Apr 2017 in Economics

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‘Using demand and supply sides, examine the arguments in favour and against the minimum wages in UK’

Minimum Wages

Minimum wage is the lowest level of earnings for employees set by government legislation.

The smallest hourly wage that an employee may be paid as mandated by federal law. Inflation and other factors necessitate periodic adjustments to the actual number.

UK Minimum Wage

The minimum wage was introduced in April 1999 at a rate of £3.60 per hour and a rate of £3.00 for those between 18-21

The Minimum wage for those over 21 is now £5.80 (October 2009)

The Minimum wage for those 16-17 is £3.57

The Minimum wage for those workers aged 18 – 21 is £4.83

It was hoped that a minimum wages would increase the incomes of the lowest paid and help reduce relative poverty.

Arguments against minimum wage

When the UK government raises the minimum wage a number of jobs are eliminated. Many employers pay the minimum wage for entry-level jobs and service-industry positions

Employers set their labour budgets for this rate and when this rises, at least some jobs inevitably get cut, unless they are extremely vital to the company. Minimum-wage jobs usually get cut first, since most employers do not consider them vital.

Raising the minimum wage will only help a small percentage of low wage workers and help them only a slight amount and will harm a much larger number of low wage workers

Raising the minimum wage does not automatically increase the productivity so employers must look elsewhere to compensate may be by cutting nonwage benefits, by working the labour force harder or by cutting training

Raising the minimum wage will hurt small businesses. Most interesting objection is that minimum wage laws are the government controlling our actions and exercise personal choice. Raising the minimum wage will limit personal choice and freedom

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Most of the minimum wage workers are teenagers, living at home, working for extra spending money. So raising the minimum wage will reduce the incentive of teenagers to go to college or seek additional training if they can already earn a high minimum wage

Arguments against raising the minimum wage frequently include claims that it will destroy small businesses and increase unemployment

Arguments for minimum wage

Fair wages will help to narrow the gap between the rich and poor

Raisin the minimum wage will help to narrow the growing and increasingly devastating gap between the rich and the poor.

Raising the minimum wage increased employee retention. The study hypothesizes that this results from employers demanding more from their workers along with the increase in pay rate. With more motivated workers, businesses do not have to spend as much to train new workers, increasing productivity and allowing expansion.

It inflation reduces the earning power of all workers and especially minimum-wage workers. Even though minimum wage workers of today earn more in numerical wages, when factoring in inflation, they earned 33 percent less in real wages during the period of 1973 to 1998. Periodically raising minimum wage closes the growing income gap


Disadvantages of minimum wage

A minimum wages can cause cost push inflation. This is because firms face an increase in costs which are likely to be passed on to consumers. This is even more likely if wage differentials are maintained.

A minimum wage may increase the number of people working on the black market.

A limitation of the minimum wage is that it doesn’t increase the incomes of the lowest income groups. This is because the poorest have to rely on benefits and are therefore not affected by the minimum wages.

Also many who benefit from the min wage are second income earners and therefore the household is unlikely to be below the poverty line. A household with a single income earner just above the min wage is likely to be relatively poorer.

Advantages of minimum wage

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 incentives 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

Supply Of the Labaur and demand of the labour

When there are fixed costs associated with employment, minimum wage regulation not only results in a reduction in employment among low productivity workers but also shifts the distribution of hours for the available jobs in the market, resulting in scarcity of part-time jobs.

Thus, for sufficiently high employment costs, a minimum wage makes it less likely for “marginal” workers to enter and stay in the labour market and has important employment effects.

This will not only reduces employment but also increases the average hours worked in the labour market

There are three groups among the non-participants. The first group is the group

of individuals who would supply positive hours if they were not constrained. They are asked to work longer hours than they are willing to supply. When facing this set of choices, they prefer not to participate.

On the other hand, for the second group of non-participants, the desired workweek is less than or equal to zero. They are the ones who willingly choose not

to participate.

The last group of non-workers consists of individuals who are undesirable

in the market when there is a minimum wage, that is, their productivity is lower than the minimum wage

Available from http://client.norc.org/jole/soleweb/8170.pdf


Available from http://tutor2u.net/economics/gcse/revision_notes/work_minimum_wage.htm


‘ Uing appropriate examples/scenarios give your assessment of the following two possible ways of forcasting’

Trend extrapolation

Consensus methods

Trend extrapolation

Trend extrapolation is a forecasting technique which uses statistical methods such as exponential smoothing or moving average to project the future pattern of a time series data.

Availalble from http://www.businessdictionary.com/definition/trend-extrapolation.html#ixzz11j8oZGO5

The main characteristic of the trend extrapolation method is that future values of any variable are determined solely by its historical values.

Trend extrapolation is only one part of technological forcasting. 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.

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Trend analysis involves the use of any of a variety of techniques based on historical data. Trend analysis involves several processes. One process is spotting an emerging trend which is identifying a change in the world around us.

For example, you may notice that more and more people seem to be waiting until they are in their thirties to have children. You may have spotted a trend that people are delaying child birth. Now you need to do some analysis to see what the nature of the trend is and what its implications might be. You could first look at historical data. What was the average age of women having their first child in 1950? In 1955? and so on.


Also the advantage exists in relation to simpler qualitative prognosis procedures like the method of the sliding averages and the exponential smoothing that future developments, which lie outside of the averages of the past, are prognosticated.


The disadvantage of a trend extrapolation is in the fact that one assumes the development observed so far will equally continue.

Future events, which can turn around the trend are not considered.

Consensus methods

Consensus decision process which not only seek the argument of most of the participants but also to resolve or mitigate the objections of the minority to achieve the most agreeable decision.

It usualy define as general agreement and the process of getting to such agreement. Consensus decision making is thus concerned as primarily with that process.

The method is intended to deemphasize the role of factions or parties and promote the expression of individual voices and it also increases the likelihood of unforeseen or creative solutions by juxtaposing dissimilar ideas.

It seeks to minimize objection because it is popular with voluntary organizations, where in decisions are more likely to be carried out when they are most widely approved. Consensus methods are desirable when enforcement of the decision is unfeasible, such that every participant will be required to act on the decision independently.

Minority views must be considered to a greater degree than in circumstances where a majority can take the action and enforce the decision without any further consultation with the minority voters. It is often thought that consensus can require more time and effort to achieve.

Thus some groups may reserve consensus decision methods for particularly complex, risky or important decisions. However, there are many examples of groups who employ consensus decision-making in ways that enable them to both consider minority viewsand make decisions in a timely and efficient manner.

Availalbe from http://www.wordiq.com/definition/Consensus_decision_making

Abstract Image

Available from http://pubs.acs.org/doi/abs/10.1021/ci700016d

Advantage of Consensus methods

Consensus estimates tend to be the most useful when data are nominal in nature and different levels of the rating scale represent qualitatively different ideas

Consensus estimates also can be useful when different levels of the rating scale are assumed to represent a linear continuum of the construct, but are ordinal in nature

To provide a comparison, four data sets of varying size and complexity were analyzed

For each data set, a genetic algorithm was used to develop a model population and the performance of consensus models was compared to that of the best single model

Two consensus models were developed, one using the top 10 models, and the other using a subset of models chosen to provide maximal coverage of model space.

The results highlight the ability of the genetic algorithm to develop predictive models from a large descriptor pool. However, the consensus models were shown to offer no significant improvements over single regression models, which are as statistically robust as the equivalent consensus models

using consensus models does not seem warranted given the minimal improvement in model statistics

Available from http://pubs.acs.org/doi/abs/10.1021/ci700016d

Disadvantage of Consensus methods

Interrater reliability statistics must be computed separately for each item and for each pair of judges

The amount of time and energy it takes to train judges to come to exact agreement is often substantial

Training judges to a point of forced consensus may actually reduce the statistical independence of the ratings, and threaten the validity of the resulting scores.

It can be overly conservative if two judges exhibit systematic differences in the way that they use the scoring rubric but simply cannot be trained to come to a consensus.

Availalbe from http://pareonline.net/getvn.asp?v=9&n=4



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