It prevents very low pay and protects employees who have little or no bargaining power, it ensures pay does not fall below reasonable limits
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Why might some employers ignore the minimum wage?
If enforcement is not active
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What is the minimum wage in the UK
£7.20
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Why do we need minimum wages?
In developed economies, people need some protection from the competition in emerging economies, where prices are lower then they are in developed economies. In emerging and developing economies minimum wages are rarely high enough to have an affect
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Why have minimum wages been kept so low?
If wages rise, employers will recruit fewer people, so they will look for capital intensive production. However, most unemployment is due to structural change, labour immobilities or recession
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Will higher minimum wages lead to reduced competitiveness?
The evidence suggests when employers have to pay a bit more, they make more effort to train their employees and raise their productivity
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How can skill shortages impact competitiveness of wages?
Structural change increases demand for certain type of skills, however education and training take time. But people with scarce skills earn more
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What can migrants do to stimulate growth?
Migrants can provide scarce skills and stimulate productivity and thus economic growth
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What is migration within economies?
Moving from a place where there are a few jobs on offer to a place where there are many jobs on offer
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When does migration between economies occur?
When people move to another country where job vacancies are rising and skill shortages are a problem
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What will happen if Trump cuts off the cheap farming labour from Mexico?
US farms will face labour shortages and have to pay higher wages for local farm workers, food prices will rise so those on low incomes will face poverty and will have less to spend on other goods, decreasing aggregate demand
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How can inequality be caused?
Very low wage rates, very high incomes that are not heavily taxed and accumulated wealth that give them unearned income
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How can people in the poverty trap be helped?
Minimum wages which can create an incentive to work and working tax credits ensure everyone is better off in work than unemployed
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