Demand & Supply , Examine the Argument in Favour & Against Minimum Wage Law in Uk

Topics: Employment, Minimum wage, Supply and demand Pages: 5 (1416 words) Published: April 24, 2010
* BUSINESS DECISION ANALYSIS*
* London* *School*of Accountancy & Management Course Instructor: Prof. Armaan Nehal. N. Panchasara
(ID no: ST0005944)
Masters of Business Administration
Assignment: A
* (Using Demand & Supply: examine the arguments in favour & against minimum wage law in UK*) * *Total words: 1,402
Demand It refers to the willingness and ability of buyers to purchase goods and services at different prices. Supply It refers to the willingness and ability of sellers to provide goods and services for sale at different prices

What* *is minimum wage? A minimum wage is the lowest monthly, daily or hourly that employers may legally pay to their employees or workers. Or in other words, it can be explained as the lowest wage at which workers may sell their labour. What is minimum wage law in U.K? A National Minimum Wage (NMW) was introduced for the first time by the Labour government of UK on 1 April 1999, and it’s been practiced hence fore. *The current minimum wage of UK* as per October 2009

Demand curve of labour: It is assumed that the higher the wage, the fewer hours an employer will demand of an employee. This is because, as the wage rate rises, it becomes more expensive for firms to hire workers and so firms hire fewer workers. The demand of labour curve is therefore shown as a line moving down and to the right. {draw:frame}

Supply curve of labour: It is assumed that workers are to ready labour for more hours if wages are high. Graphical economic representation of this relationship is plotted as the wage on the vertical axis and the quantity (hours) of labour supplied on the horizontal axis. Since increase in wages, increase the quantity supplied, the supply of labour curve is upward sloping, and is shown as a line moving up and to the right. {draw:frame}

Effect of Minimum wage law on demand & supply:
{draw:frame}

Nearly all introductory textbooks on study of economics, it states, increasing the minimum wage decreases the employment of minimum-wage workers. More such textbook says: "If a higher minimum wage increases the wage rates of unskilled employees above the level that would be established by market forces, the quantity of employment for unskilled workers will fall. The minimum wage will price the services of the lowest productive (and therefore lowest-wage) workers out of the market. ... The direct results of minimum wage are clearly mixed. Some workers, mostly those whose previous wages were closest to the minimum, will enjoy higher wages. Other, particularly those with the lowest wage rates, will be unable to find work. They will be pushed into the ranks of the unemployed. If there is rise in the level of minimum wage, then there is rise in level of unemployment, because if the minimum wage is increased the demand for labour falls as it is less profitable for the firms to employ as many people. It is assumed that higher the wages, the fewer hours an employer will demand of an employee, as the wage rate rises, it becomes more expensive for firm to hire workers and so firms hire fewer workers. The demand of labour curve is therefore shown as a line moving down and to the right. While merging the demand and supply curves of labour, we can examine the effect of minimum wage. Assuming that supply and demand curves for labour will not change as a result of raising the minimum wage. If no minimum wage is in the place, workers and employers will continue to adjust the quantity of labour supplied according to price until the quantity labour demanded is equal to the quantity of labour supplied, i.e. reaching Equilibrium price, where demand and supply curves intersect. As shown in above graph. Arguments in Favour of Minimum wage law:

Motivates and encourages employee to work more efficiently. By increasing incomes for the lowest-paid workers, the cost...

References: Abowd, John M., Francis Kramarz, David N. Margolis and Thomas Philippon (2000),
“A Tail of Two Countries: Minimum Wages and Employment in France and the United States”, mimeo, CREST, Paris, September.
Angriest, Joshua and Alan Krueger (1999), "Empirical Strategies in Labour Economics”, in O. Ashenfelter and D. Card (eds.), Handbook of Labour Economics,
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