Labour’s pledge to level-up minimum wage for under-20s before next election in doubt
Real-world example for IB, A-Level, AP and IGCSE Economics essays: Wages and income inequality, Unemployment and the labour market, Taxes, subsidies and price controls
What happened
Chancellor John Healey did not guarantee that the minimum wage for under-20s would be raised to the adult rate within the timetable set out in the manifesto, making it less likely Labour will meet its pledge before the next election.
The economics
A minimum wage is a form of government intervention that sets the price of labour directly. Raising the youth minimum wage aims to narrow the pay gap between younger and adult workers, addressing wage inequality, but it can also raise firms' labour costs and affect youth employment, which helps explain why delivery is uncertain.
Figures to quote
- under-20s
Evaluation
Higher youth pay benefits low-paid young workers, but firms may respond by hiring fewer young people or cutting hours, so some youth could face unemployment; delivery also depends on economic conditions and fiscal room, and short-run and long-run effects may differ.
Practice question
Using this example, analyse the likely effects of raising the youth minimum wage on wage inequality and employment in the youth labour market.
Where it fits in the syllabus
- Wages and income inequality: How labour markets set wages, and how income and wealth are shared across people.
- Unemployment and the labour market: People willing to work who cannot find a job; it can be cyclical, structural or frictional.
- Taxes, subsidies and price controls: Indirect taxes, subsidies and maximum or minimum prices that governments use to change market outcomes.
- IB Economics: Aggregate Demand and Supply, Measuring Economic Activity, Government Intervention and Market Failure
- A-Level Economics: Macroeconomic Objectives, Government Microeconomic Intervention
- AP Macroeconomics: Economic Indicators and Business Cycle
- AP Microeconomics: Factor Markets and Income Distribution, Supply, Demand and Market Equilibrium, Market Failure and the Role of Government
- IGCSE Economics: The Allocation of Resources, Macroeconomic Objectives, Government Intervention