National Minimum Wage (NMW)

National Minimum Wage (NMW)

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National Minimum Wage (NMW)

The National Minimum Wage is the lowest level of hourly pay that an employer is allowed to pay an employee. 

The national minimum wage was introduced by the government to ensure workers were not exploited with unfair low wages. The equilibrium wage rate paid by employees at (PE, QE) was deemed to be too low for employees to sustain basic living standards.

NMW Rates (2020)

These rates are for the National Living Wage and the National Minimum Wage. The rates change every April.

Year   25 and over   21 to 24   18 to 20   Under 18   Apprentice
April 2020 (current rate)   £8.72 £8.20   £6.45   £4.55   £4.15
April 2019 to March 2020   £8.21 £7.70   £6.15   £4.35   £3.90

Source: gov.uk

Advantages of National Minimum Wage

  1. The NMW will create more equality between the rich and the poor.
  2. The NMW will encourage those on benefits to joining the labour market as they will be able to potentially earn more money.
  3. Poverty may be reduced as low-income workers will be paid more.
  4. Less labour exploitation through extremely low wages.
  5. Those who are earning more will have a higher marginal propensity to spend.

Disadvantages of the National Minimum Wage

  1. An increase in the NMW could lead to a rise in prices being passed on to consumers leading to higher inflation.
  2. Due to an excess supply of labour over demand for labour, this could lead to unemployment.
  3. The competitiveness of UK goods and services could reduce with lower exports due to higher inflation.
  4. Foreign Direct Investment could decrease as labour wages deter new companies from investing in the UK. The Uk would become less competitive than in other countries.
  5. Workers may have to join the hidden economy and work for lower wages.
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