The national minimum wage was introduced in the UK in April 1999 by the Labour government. Essentially it formed a major part of their

manifesto as it convinced the average population that Labour were

beneficial for everybody. However, they would argue against classical

economics and suggest there are wide spread benefits to be gained.

The main argument is that the NMW would alleviate poverty across the

country. This is an equity issue that has constantly concerned society

and would go some way to redistribution of income. It is a social

belief that if every one is 'well off' and lives above the poverty

line, there will be positive social externalities for all. For

example, those living in poverty are usually more susceptible to

disease due to poor living standards. This in turn costs the taxpayer

money through NHS treatment. Paying those on the low wages higher will

help prevent this and the formation of many large impoverished areas,

which tend to develop law and order problems like Tower Hamlets,

London. At the time of introduction the rate was set at £3.60 and

affected 2million workers, around 9% of the workforce at the time. The

Labour government would use these figures to support the introduction

of the NMW and evidence that it works.

The UK did not have a large unemployment issue at the time of

introducing the legislation and the figure has been around 1 million

for a few years. However to increase the nations overall allocative

efficiency (approach a national PPF) full employment and utilisation

of the labour factor is needed. There is truth in the economic

principle of parties acting rationally and wishing to maximise th...

... middle of paper ...

...try of information means this is

unlikely, it is still a possibility it could raise business costs.

The effect on public sector finances could be negative. The

unemployment created will increase the number of people on benefits.

Further more the government will have to abide by it's own

legislation, and increase wages in the public sector. Overall

government spending will increase.

In conclusion the NMW is not ideal for the UK economy. It has had

limited success in reducing unemployment however if it was at a higher

level, it could prove highly detrimental to business and consumers..

Inflation rates have shown little change as well as long-term

unemployment figures. Most importantly is the fact that the people

that the NMW aims to help will be most negatively affected if we are

to believe classical economics.