Cambridge International as and a level Economics Ebook

particular signifi cance for them.
Whether there should be a minimum wage is 
controversial. Additionally, it was argued that the amount 
of state benefi ts being paid to low-income families would 
be reduced with the introduction of a minimum wage. 
Th
ere might also be a small increase in tax revenue. 
Opponents were not convinced by these arguments, 
believing that jobs would be lost and that other low-
paid workers would seek an increase to maintain their 
diff erential with the lowest paid. Cost-push infl ation could 
well result, so aff ecting the economy as a whole.
Th
e economics of a minimum wage are shown in 
Figure 8.19.
Th
e eff ect on an industry is particularly 
dependent upon the elasticities of demand and supply for 
labour in that industry. 
Figure 8.19a 
shows the eff ects where 
there is an inelastic demand for labour. Th
e loss of jobs here 
is much less than shown in 
Figure 8.19b
where the demand 
for labour is more wage elastic. In both cases there is an 
excess supply of labour at the higher minimum wage. Th
is 
excess is more pronounced in 
Figure 8.19b
, where both the 
demand for and supply of labour are relatively elastic. It can 
also be seen that the higher the minimum wage is set above 
the competitive equilibrium ($2.50 in the case of 
Figure 
8.19)
, the greater will be the excess supply of labour willing 
to work at the national minimum wage.
A problem with the minimum wage in the UK is that 
it applies across the entire country. It does not take into 
account variations in the cost of living. In London, for 
example, the cost of accommodation, food and other living 
costs are much higher than elsewhere. Consequently, 
it is very diffi
cult to survive on the minimum wage 
alone unless long hours are worked. Recently, a ‘living 
wage’ has been promoted. It is calculated on the basic 
cost of living but unlike the minimum wage, employers 
choose to pay this on a voluntary basis. In London in 
2014, this was £8.80 per hour compared with £7.65 
elsewhere. Th
e minimum wage was less, at £6.31 per hour.