National Minimum Wage In The Uk

Governments in the UK are democratically elected on the basis of their manifesto; this document outlines the plans they have for the country, including how they will intervene with the economy to make society fairer, should they be elected. It is widely debated whether the current UK government’s approach to national minimum wage and unemployment benefits has had a positive or negative affect on low income households. This article will explain and explore the governments approach and analyse its effectiveness in relation to microeconomic theory.

The national minimum wage was a policy bought about by Tony Blair to provide genuine equality of opportunity for society. According to Logan (2007), when the national minimum wage was first introduced

Lipsey and Chrystal (2015) state that “an effective floor price may well lead to an excess supply [of labour]-in this case, unemployment.” This can be due to the fact that some firms will not be able to afford the floor price set by the government and they are vulnerable to ‘offshoring’ jobs to distant countries where the unskilled labour is cheaper. The diagram below shows how there should be an excess supply of labour if the government were to impose a national minimum wage above the current equilibrium, as they plan to increase the minimum wage to £7.50 in April 7017. When there is an excess supply in a market the theory of competitive markets suggests that prices would fall until the competitive price is met, however wages cannot simply ‘fall’ if legislation does not allow

In fact, employment rates in the UK have been on the rise over the past five years; from 70.1% in October 2011 to 74.4% in October 2016 for “people aged 16-64” (Office For National Statistics, 2016). This evidence suggests that there have not been any drawbacks of the National Minimum wage policy for low income households, since the first implementation by Blair, to its use by the current government today.

Unemployment benefits are another way in which the government intervene to help low income earning households. Job seekers allowance is a benefit which is there to help those who are idle from work whilst they are seeking employment (Aaronson, 2016). This policy is beneficial for low income households as it may stop them falling into poverty when searching for unskilled