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Global Demand for Bicycle Helmets

Discuss whether a rise in the wages paid to low-paid workers would benefit an economy.

Category:

Labor Market and Income Distribution

Frequently asked question

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Answer

Analyze and evaluate the data and evidence you have collected.


Rising wages for low-paid workers can have various implications for an economy. Here's an analysis of the potential benefits and drawbacks:
Benefits:
➡️1. Poverty reduction and improved living standards: Increasing wages for low-paid workers can help alleviate poverty and enhance living standards. By providing access to basic necessities, such as food, shelter, and healthcare, individuals and their families can experience an improved quality of life.
➡️2. Enhanced worker motivation and productivity: Higher wages can serve as a motivating factor for low-paid workers, leading to increased productivity. When workers feel fairly compensated, they may be more engaged, committed, and willing to invest their skills and efforts into their work. This, in turn, can contribute to higher output, economic growth, and improved quality of goods and services.
➡️3. More equitable income distribution: Raising wages for low-paid workers can help reduce income inequalities within a society. By narrowing the gap between high and low earners, income distribution becomes more even, fostering social cohesion and reducing social disparities.
➡️4. Increased total demand and employment: Higher wages for low-paid workers can stimulate consumer spending, leading to increased total demand for goods and services. This heightened demand can create opportunities for businesses to expand and hire additional employees, thereby reducing unemployment rates and supporting economic growth.
➡️5. Greater tax revenue and investment in social services: Rising wages can result in increased tax revenue for the government. This additional revenue can be used to fund social services and public investments, such as education and healthcare. Improved access to education and healthcare, in turn, can enhance human capital, productivity, and overall well-being.
Drawbacks:
➡️1. Increased production costs and inflationary pressures: Rising wages for low-paid workers can raise production costs for businesses. If businesses are unable to absorb these higher costs, they may be passed on to consumers in the form of higher prices, leading to cost-push inflation.
➡️2. Potential job losses and unemployment: To offset increased labor costs, firms may resort to cost-cutting measures, including workforce reductions or automation. This can result in job losses and increased unemployment, particularly if businesses perceive the wage increase to be unsustainable or disproportionate to productivity gains.
➡️3. Demand-pull inflation: Higher wages can stimulate increased consumer demand, leading to demand-pull inflation if the economy operates at or near full capacity. This inflationary pressure can erode the purchasing power of wages, particularly for low-paid workers, and reduce overall economic stability.
➡️4. Potential negative spending patterns: Low-paid workers may allocate a higher proportion of their increased wages towards consumption of demerit goods, such as tobacco or alcohol, which can have adverse health effects. This may lead to increased healthcare costs or social challenges.
➡️5. International competitiveness and current account imbalance: If wages rise significantly in a specific country, it may impact the international competitiveness of its products. Higher labor costs may make domestically produced goods more expensive compared to foreign alternatives, potentially leading to a decline in export competitiveness and widening the current account deficit.
It's essential to consider the specific context and dynamics of the economy when assessing the impact of rising wages for low-paid workers. Policy measures and complementary initiatives, such as skills development, productivity improvements, and social safety nets, should be considered to address potential drawbacks and ensure sustainable and inclusive economic growth.

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I. 🍃Introduction
- Brief explanation of the topic

II. Reasons why minimum wage might reduce poverty/increase living standards
- Giving access to basic necessities
- Making income more evenly distributed
- Enabling the poor to spend more on education of their children

III. Reasons why minimum wage might increase motivation of low-paid workers
- Raising productivity
- Increasing output/raising GDP/cause economic growth
- Increasing quality of output
- Reducing costs of production

IV. Reasons why minimum wage might increase total demand
- Raising employment
- Greater tax revenue
- Enabling government to spend more on education/health care
- Greater literacy/longer life expectancy

V. Reasons why minimum wage might not be beneficial
- May increase costs of production
- May cause cost-push inflation
- Firms may make workers redundant/increase unemployment
- May cause demand-pull inflation
- Low-paid workers may spend more on demerit goods/reduce health
- Higher costs may make the country's products less internationally competitive/worsen the current account position

VI. 👉Conclusion
- Summary of the main points
- Personal opinion on the topic

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Up to ➡️5 marks for why it might: May reduce poverty/increase living standards - giving access to basic necessities -. May increase motivation of low-paid workers - raise productivity - increase output/raise GDP/cause economic growth - increase quality of output - reduce costs of production -. May make income more evenly distributed -. May increase total demand - raising employment -. Greater tax revenue - may enable government to spend more on e.g. education/health care - greater literacy/longer life expectancy -. May enable the poor to spend more on the education of their children - raise their productivity -
Up to ➡️5 marks for why it might not: May increase costs of production - may cause cost-push inflation -. To reduce costs of production - firms may make workers redundant/increase unemployment -. May increase total (aggregate) demand - cause demand-pull inflation -. Low-paid workers may spend more on demerit goods - reduce health -. Higher costs may make the country’s products less internationally competitive - worsen the current account position -.

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