Inflationary pressure caused by the National Minimum Wage may also be a problem for individuals assisted by the minimum wage. In many jobs there is a pressure to maintain pay differentials one example of this is in the health service. Doctors feel that the job they do is more important than that of nurses and so they expect to be paid more. This means that offering minimum wage to the lower paid members of staff may cause upset amongst higher paid members of staff who feel they also deserve a pay rise.

If they are also given a pay rise then this will not only cause possible problems for the cost structure of businesses but it may also lead to cost push inflation. If business costs are rising then a natural response is to raise the prices for their products or services, therefore meaning that the people the minimum wage aims to protect i. e. those groups in the low pay sector are no better off than they were previously. The minimum wage may cause some difficulties for those it aims to assist by increasing involuntary unemployment and possible inflation.

However the employment situation has been recently compounded by a raft of additional legislation including increased national insurance payments, longer maternity and paternity leave, holiday entitlement for part time workers and other factors which together make each employee more costly to employ. Because of all these factors it might be impossible to identify the minimum wage as the main culprit behind job losses and it might only be possible to view it as a contributing factor.It does also help to prevent exploitation of workers in the lowest paying business sectors and certain groups of individuals most likely to be affected by low pay. Statistics found by the Low Pay Commission (1998) showed that on one estate “63% of unemployed people had refused jobs because they claimed that the pay was so low that they were better off on benefits”. Although this is voluntary unemployment as opposed to involuntary employment, it is still evidence that the minimum wage does more to assist than it does to harm.Furthermore the number of young people leaving education and training should be kept to a minimum by the introduction of a development rate.

This is lower than minimum wage and not only will it be less attractive to young workers but it should encourage employers to train their workers, as workers aged 21 and over are eligible for this rate whilst being trained in the first 6 months of a new job.Restoring pay differentials may cause problems for the economy and indirectly for those the minimum wage aims to assist, however this will vary considerably between businesses and as long as minimum wage is not set at too high a rate then this effect should only be very small. Therefore as long as minimum wage is kept at a sensible rate where there is free market equilibrium (thus keeping involuntary unemployment to a minimum), it benefits a number of workers and helps to prevent the worst cases of exploitation in the workforce, doing more good than it does harm.

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