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

***** purpose of this paper is an examination of 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 ***** labour market as well ***** vary*****g theories related to the expected effects of introduction of a minimum wage increase in the upcoming years.

Expected Effects 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 ***** minimum wage might ***** a negative im*****act on employment levels, little empirical evidence supports this c*****sequence. Inflation has responded relatively slowly to the statutory wage, increasing only.4 percentage points in the UK over the two year time frame following establishment of the rate (*****, 2005).

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

The exact effects an increase will ***** on employment is not certain, though m***** believe ***** employment ***** realize ***** impacts and the ***** of unemployment may r*****e (*****, 2004; Low Pay Commission, 2000; Card ***** Krueger, 1995). How much employment will fall is uncertain, though some believe


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