Essay - Microeconomics Main Determinants of the Effects of Statutory Minimum Wage...

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Main Determinants of the Effects of Statutory Minimum Wage on Employment


***** have long pondered the effects of a national minimum wage on employment within ***** UK economy. Traditionally the subject of a statutory minimum wage has raised great debate and conflict among employers and o*****r organizational representatives (Lipsey & Chrystal, 2004). Many have argued that the current minimum wage, which is just £3.60 within the UK, is much too minimal to significantly benefit employees (Tu*****r2u, 2005; Figart, *****). The current pay floor, establ*****hed in April of 1999 has had many economic benefits and has provided over 2 million workers with fair wages (Tutor2u, 2005). ***** Low Pay Commission in the UK recently recommended the rates be raised after meeting with multiple Trades Unions, confederations of *****' and individual workers ***** business owners (*****, 2005). Proponents for an increase are arguing for a minimum rate ***** £5.00 ********** abolition of separate rates ***** youths between the ages of 18-20, who receive less than those 21 and above using ***** present system (Tutor2u, 2005).

The purpose of this paper is an examination ***** the main determinants of the effects of a ***** minimum w*****ge in the ***** on *****. The researcher will review the overall effects of the ***** wage on the economy and labour market as well ***** varying theories related to the expected effects of introduction ***** a minimum wage increase in the upcoming years.

Expected ***** and Theory

The statutory minimum wage in effect was created "when ***** economy was growing relatively strongly" (Tutor2u, 2005: p. 1). While some feared creation of a national minimum wage might ***** a negative im*****act on employment levels, little empirical evidence supports this c*****sequence. Inflation has responded relatively slowly to the statu*****ry wage, increasing only.4 percentage points in the UK over the two year time frame following establishment of the rate (*****, 2005).

***** effects however would an increase have on the economy in the *****? Those for the rate hike suggest ***** it will not affect employment or inflation, much as creation of the in*****ial statutory minimum affected neither signific*****tly. Still others suggest that a higher ***** might help reduce the extent ***** low ***** of *****, *****nd that a raise while just would do little to provide "living wages for workers in ***** UK" (Tu*****r2u, 2005:p. 1). The Low ***** Commission (1999; 2002; 2003) *****s that a statutory m*****imum wage hike may result in an ***** increase of roughly 1.2 percentage points over the two *****s following its initial change and in the years follow*****g any subsequent change, which ***** result in a total ***** 2 ½ percent *****flation target according to the Bank of England (Tu*****r2u 2005, p. 1).

The exact effects an increase will have on employment is ***** certain, though many believe that employment will realize negative impacts and the rates of unemployment may rise (Figart, 2004; Low Pay Commissi*****, 2000; Card ***** Krueger, 1995). How much employment ***** fall is un*****, though some believe


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