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Employment Policy - Minimum Wage (Cons of a MW (May affect youth…
Employment Policy - Minimum Wage
Overview
MW In Low Paying Jobs
– 2015 the MW wage 85% of median earnings in low paying occupations but post the NLW introduction rose to 88% then by 2017 in some low paying occupations was as much as 90%
– However when compared to normal median wage its just 48%
MW In Small Firms
– Hikes in the NLW is likely to be felt badly by small firms even more than they feel it already
– Its predicted by 2020 for small firms the MW will reach 76% of median earnings
Distribution Effects
– Pre minimum wage the people at the lowest end of the pay scale had the lowest pay rises
– 1997 they had much higher growth than those in the middle
– 2011 and 2015 bottom still rose by 1.4%pa whilst the top didn’t grow or fell
International comparison
Pre NLW the ratio of MW to median earnings was below OECD average but still above USA
Minimum Wage
– Introduced 1999 and set each year by the government from recommendations from the low pay commission
– From April 2018 rates are:
£7.83 25+ (NLW)- to rise to 9 by 2020
£7.38 21-24
£5.90 18-20
£4.20 under 18
£3.70 Apprentices
– When first introduced has rises in real value and relative value as it rose quicker than median wages.
– In the recession it still rose quicker than median wages but less than inflation
– 2014 onwards has seen increases in real and relative values especially post 2016 which is the highest increase
Empirical Studies
Some findings of different studies concluded
adverse effects for part time employees and that young workers were more affected during the recession
-Negative effects on part time female employees
-firms that were most affected by NLW reduced their share of unskilled workers in routine occupations
-found that it reduced likelihood for people to enter the workforce
-negative effcts in the lowest paying regions and on care home workers
-premium payments and in work benefits were reduced e.g. subsidised transport or sales bonuses
-small reduction in hours worked but not enough to affect weekly wage
-several found that it improved productivity
-Increased training (both intensity and length)
-firms who don’t trade internationally have been able to increases prices but generally has had a negative effect on firms profits
-weak(ish) evidence that it has caused business closures and hampered business creation
In summary
Studies find no effect on total employment but some negative effects on particular groups in low wage industries or regions
Cross Country Surveys/studies
– OECD study on 9 countries from 70’a to 90’s found a negative effect on teenage employment
– Another study of roughly same period also found negative effects on youth employment but that they were small if you have a sub-minimum level for youths. Also that trade unions and labour standards help to offset the negative effects of MW
– This same study conducted a survey that of the most credible studies 85% found negative employment effects
Pros of a MW
Offsets income inequality
Increases incentives for firms to improve labour productivity
If you can get a job you will get a higher wage
No government funding- so no opportunity cost
Politically feasible- trade unions etc like MW
Very quick to implement
Cons of a MW
May affect youth unemployment, and unskilled workers
Disproportionately affects small firms which could cause an increase in market concentration
Can increase inflation which comes with its own negatives, e.g. international competitiveness
Once implemented almost impossible to get rid of (and sometimes introduced to ‘buy’ votes)
Particularly affects some goods prices like hairdressing or agriculture
Unemployment could lead to hysteresis
People may enjoy working less due to less benefits in work
Potentially lead to increase illegal labour (i.e paying under the MW) which can cause poor working conditions as illegal anyway