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Does a higher NMW increase the distribution of income?

This depends on a multitude of factors and is tricky to answer.

One of the ways in which a higher NMW, which the latest government is implementing, would reduce inequality, is simply because it raises wages of those in lower income families. This increases their disposable income and therefore their standard of living should rise.

However, this is not always the case; for two main reasons. The first of which is that around 40% of those on the NMW are secondary earners of richer households! Therefore money is not being efficirntly transferred from high earners to low earners.

Additionally, classical economists would argue that a wage floor leads to higher unemployment levels, as the cost of labour rises so firms will cut back on labour to lower costs. Therefore this would worsen the situation.

The answer to this question also depends upon the effects on productivity

Thomas  W. A Level Economics tutor, GCSE Economics tutor

8 months ago

Answered by Thomas , an A Level Economics tutor with MyTutor


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