The National Minimum Wage In The UK

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Minimum wage is hourly, daily or monthly minimum charges, employers may legally pay the employees. In United Kingdom national minimum wage rate of hourly wage which is acceptable by law. The domestic law of the minimum wage in the United Kingdom since 1999, the ratio of minimum wage for adults was established at £3.60.

In the year 2009, the proportion was £5.80 per hour for adults who are 18-21 years old £5.80 per hour which is risen from £4.77. In 2004, after which the recommendation of low wages, minimum wage for 16-17 years old was £3.00 per hour in 2008, which was increased to £3.53. In October 2010 adult rate is increased from 5.80 in 2009 to 5.93.

The adult National Minimum Wage (1998 - 2010)

National minimum wage

The aims of a national minimum wage

The equity justification:

Every employer should pay a fair rate to their employee according to their skills and experience.

Labor market incentives:

NMW is designed to create incentives for people to start looking for work improvement, thereby boosting the economy's available labor supply.

Labor market discrimination:

NMW tool for a private party for the consequences of continuing discrimination against women workers is very low paid and young workers for compensation.

The long-term aim of a minimum wage is to remove the problem of poverty pay, which exists when the earnings from paid work do not result in a living wage and fail to push people out of poverty.

Effects of a National Minimum Wage

On the supply side the higher wage will encourage existing employees to supply more labour, or it will encourage workers out of voluntary unemployment. The effect can be demonstrated in the following diagram.

Minimum wage

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.

Elasticity of labour demand

Elasticity of labour demand measures the responsiveness of demand for labour when there is a change in the ruling market wage rate. The elasticity of demand for labour depends:

Labour costs as a % of total costs: When labor costs are a big part of the total cost, the demand for more flexible employment and business, where the fixed cost of capital in the dominant cost element.

The ease and cost of factor substitution: Demand of labor should be more flexible if a company quickly and easily replace the funds between capital and labor when relative prices change in time. When you cannot all resources can be changed easily to industrial processes (for example, work is specialized or capital necessary), then the demand for jobs that will not be flexible on the rate of salary.

The price elasticity of demand for the final output produced by a business: If the company is a very competitive market, the final product price elasticity of demand, the market can break the power of consumers to pay higher costs passed on higher prices. Can be more elastic demand for employment as a result. In contrast, a firm that sells a product where final demand is inelastic will be better placed to pass on higher costs to consumers.

The diagram below shows two labour demand curves with different elasticity

Elasticity of labour demand

Supply of labor curve

Amount of work to ensure workers are generally positively related to nominal wages. Economists have it on the salary schedule with the vertical axis and the amount of work on the horizontal axis. Labour supply is diagonal in the upper curve, and appears in the form line to the right.

Upward slope of supply curve results of the work and the fact that high wages in the labor force and people, and less time Incanted relax and work more time consuming, and people outside the labor force join Incanted. If a higher salary and expenses to spend time, rest and raise the cost of not participating in the labor force.

Demand for labor curve

It is assumed that the amount of work required by the company to be negatively related to the nominal wage and labor compensation increases, firms demand less labor. Worked in the supply curve, is often depicted in the formulation of this relationship on the vertical axis represents the salary and Amount of work required to the horizontal axis. Labor demand curve is down, and is described as a line moving down and to the right schedule.

Value function of the average company is salary. If wages rise, it becomes more expensive for companies to work for the staff, and so many companies hire employees.

Relationship between Supply and demand of labor curve

Supply and demand curves work allows us to determine the minimum wage for them. Change in the minimum wage. Sometimes it may be the view, but any work that cannot pay staff salaries. And coordinate all activities of the structure of demand, such as regulatory requirements. Question and craftsmanship is the most qualified person. The issue may not be complete without data

Demand curve and to reduce labor supply curve to cover the job market. On balance, the number of people who / recommended amounts of work to an equal number of jobs available / required amount of work. If wages rise above the equilibrium wage table, the number of people who work, and it seems the number of available jobs, respectively. If it was the destruction of a number of functions, so it will be less jobs available, and should theoretically lead to unemployment. Thus, the absence of government intervention, competition for workers will result in a limited number of jobs decline in wages until they reached the equilibrium wage rate. As the minimum wage, prevent wages from declining.

Impact of minimum wage on unemployment and employment

Impact of minimum wage on employment depends on the elasticity of demand and offer flexible employment in various industries. If demand is relatively inelastic then reductions in service employment, perhaps less serious than if it is to require employers to work flexibly change in salary levels.

The following graph we see that the potential impact the minimum wage, when all the demand of labor and employment inelastic response to changes in market wages. Create a surplus much higher than the previous scheme.

importance of elasticity of demand and supply of labour



Beginning of the minimum wage and unemployment in Britain continues to decline, and the level of employment in the UK economy is now at a record high. It should be recalled that the minimum wage in the labor market tight, high unemployment and low employment. The real test floor is likely to pay when the economy experiences a recession.

Areas most affected by the minimum wage in the hospitality and tourism textile and Social Security. Even here, small employment effects, and can easily be explained by changes in the competition (for example, from the outside) the consequences of technological change and demand of labor

Inflation, little side effects on wages and inflation. Other factors that inflationary pressures are mainly enabling the UK in recent years. Many sectors and companies it is difficult to pass higher costs of wages for end users - to reduce the impact of inflation the minimum wage again

Salary costs: The minimum wage only affects a small number of staff and the impact on wage bills of most companies is an important factor in their decision-making. Short-term demand for labor tends to be knowledgeable about the change in salary

Discrimination, minimum wage has a significant impact on earnings of workers with part time women.

Productivity is difficult to have any positive impact on the efficiency of work decided "But there was to increase the productivity of industries that pay less, a trend that began before the presentation, as well as the minimum wage.

The advantages of a national minimum wage:

It will be a greater equality, and can reduce the income distribution between high wages and low wages.

It can reduce poverty and low wages, and may be encouraged to get more income and unemployed labor market closing.

Less exploitation of workers by labor market monopolies, which some employers pay below market equilibrium.

The disadvantages of a national minimum wage:

It can lead to high inflation the minimum wage, as companies go higher wages, higher prices.

Fall to work, such as contracts and demand, and high rates of unemployment, and investment groups.

It can be compared to British competitiveness of goods in foreign countries suffer low wages economies such as China and India.

Deter domestic investment, as well as foreign investors will be watching a high salary in order to avoid economies.

Labor market is flexible in response to changes in the rest of the economy.

It can be launched for employers and employees in labor markets "official."