Assess the impact of minimum wage legislation on a developing economy.

An increase of a National Minimum Wage (NMW) increases living standards of the population by increasing their spending power. This, will cause demand for consumer products to increase, causing GDP to increase, as GDP = C+I+G+(X-M). Increasing NMW can also act to reduce inequality, as it raises the legal minimum floor-price of labour. However, the impact of this is dependant on the magnitude of the increase. Such an increase will also increase the productivity of labour, both in the short term because be more motivated and in the longer term because firms will be incentivised to invest in labour productivity.
However, there are also downsides of increasing NWM, such as its impact on inflation and international competitiveness, which may cause more harm to GDP than the positive impacts. Demand pull inflation will be seen domestically in the short term, as the population has more disposable income but goods (especially those that are inelastic) will not be able to increase in supply to match it. Firms will also have to increase their prices if they wish to profit maximise, and therefore cost-push inflation will be experienced. Moreover, the impact of increasing the NMW may not be positive for the work force, if businesses decide to decrease the size of their workforce in order to cut costs.