What are the benefits of an increase in the National Minimum Wage?

The national minimum wage (NMW) is a legally imposed wage floor below which wages cannot fall. By increasing the NMW workers receive higher wages. This has five major benefits. Firstly, a rise in the NMW would lift some workers out of poverty. This may result in lower benefits given by the government, as people can now support themselves financially. Secondly, a rise in the NMW results in increased disposable income for workers, which they can spend on goods and services. By consuming more goods and services their standard of living improves. Thirdly, the rise of the NMW also improves the distribution of income in an economy, thus reducing income inequality. Fourthly, as workers spend more on goods and services, consumption in the economy is boosted. As consumpiton increases in an economy unemployment falls. This is because labour is an example of dervied demand, meaning that the more people consume, the more labour will be demanded to man shops, supermarkets, cinemas etc. Finally, increased consumption will generate higher tax revenue for the government.

Answered by Xenia K. Economics tutor

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