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Income Increase and Mobility of Labor
Discuss whether or not the 🍃Introduction of a national minimum wage will reduce poverty. In assessing each answer, use the table opposite. Why it might:
Labor Market and Income Distribution
Frequently asked question
Stay within the assigned word limit and avoid unnecessary repetition.
The 🍃Introduction of a national minimum wage may have both positive and negative effects on reducing poverty.
Why it might reduce poverty:
➡️1. Better Pay for Low-Paid Workers: The implementation of a national minimum wage ensures that low-paid workers receive a higher income. This can help lift them out of poverty by providing them with a more sustainable income to cover their basic necessities and improve their overall living standards.
➡️2. Reduction in Absolute and Relative Poverty: A national minimum wage can contribute to reducing absolute poverty by setting a wage floor that ensures workers earn a minimum income level deemed sufficient to meet their basic needs. Additionally, by narrowing the pay gap between high-income and low-income workers, it can help alleviate relative poverty, which is measured in comparison to the average income in society.
➡️3. Increased Spending and Job Creation: Higher wages for low-paid workers can lead to increased consumer spending, as these individuals have more disposable income. This increased spending can stimulate economic activity and potentially create more jobs, providing opportunities for individuals to escape poverty.
➡️4. Potential for Government Intervention: Higher tax revenue generated from increased wages can provide the government with additional resources to invest in poverty reduction measures. This could include funding social programs, education, healthcare, and other initiatives aimed at improving the well-being of low-income individuals and families.
➡️5. Productivity Improvement: A higher minimum wage can incentivize firms to invest in productivity-enhancing measures to offset increased labor costs. This, in turn, may lead to increased efficiency and competitiveness, which can create a favorable environment for job creation and economic growth.
Why it might not reduce poverty:
➡️1. Insufficient Wage Levels: If the national minimum wage is set below the current low pay levels, it may have little impact on reducing poverty. In such cases, workers may still struggle to meet their basic needs, and poverty rates may remain high.
➡️2. Potential Job Losses: The 🍃Introduction of a national minimum wage could lead to job losses, particularly in sectors where profit margins are slim and businesses are unable to absorb the increased labor costs. In these instances, unemployment rates may rise, and the overall impact on poverty reduction could be limited.
➡️3. Exclusion of Unemployed Individuals: A national minimum wage primarily benefits individuals who are employed. It does not directly address the challenges faced by those who are unemployed, retired, disabled, or unable to work due to illness or other circumstances. Poverty among these groups may persist despite the minimum wage policy.
➡️4. Discouragement of Multinational Corporations (MNCs): Higher labor costs resulting from a national minimum wage may deter multinational corporations from operating in a country. This could limit foreign direct investment and potentially reduce job opportunities, particularly in labor-intensive industries.
➡️5. Inflationary Pressure: If the 🍃Introduction of a national minimum wage leads to a significant increase in labor costs, businesses may pass on these higher costs to consumers through price increases. This could result in inflation, offsetting the purchasing power gains from higher wages and leaving real wages unchanged.
It is crucial to consider the specific context and design of the national minimum wage policy, as well as its interaction with other social and economic factors, when assessing its potential impact on poverty reduction.
- Definition of minimum wage
- Importance of minimum wage in reducing poverty
II. Pros of increasing minimum wage
- Low-paid workers may be better paid
- Higher income may enable people to buy basic necessities
- Reduce absolute poverty
- Pay gap between high-income and low-income workers may be reduced, lower relative poverty
- Higher pay may increase spending, creating more jobs and income
- Higher tax revenue may enable the government to spend more on reducing poverty
- Higher wages may increase productivity which could encourage firms to hire more workers.
III. Cons of increasing minimum wage
- May be set below current low pay and so have no effect
- May result in some workers losing their jobs
- Unemployed will have lower income
- May discourage MNCs operating in the country
- Does not help people who are poor because of age, unemployment or sickness
- May result in inflation, leaving purchasing power/real wages unchanged.
- Summary of pros and cons
- Importance of considering both sides before making a decision.
• low-paid workers may be better paid
• higher income may enable people to buy basic necessities
• reduce absolute poverty
• pay gap between high-income and low-income workers may be reduced, lower relative poverty
• higher pay may increase spending, creating more jobs and income
• higher tax revenue may enable the government to spend more on reducing poverty
• higher wages may increase productivity which could encourage firms to hire more workers. Why it might not:
• may be set below current low pay and so have no effect
• may result in some workers losing their jobs
• unemployed will have lower income
• may discourage MNCs operating in the country
• does not help people who are poor because of age, unemployment or sickness
• may result in inflation, leaving purchasing power/real wages unchanged.