Minimum Wages in the UK Labour Market - Essay Example

Although many other authors have offered their opinions on this subject matter and conducted their own research stemming from these previous studies. Throughout this literature review I will be identifying these authors opinions and believes and comparing and contrasting. "A minimum wage destroys jobs and the economy according to standard economic theory. It says that if you force employers to pay their staff more than they are worth with a minimum wage, they will cut jobs" (Giles, 1999). These are the basic laws of economics, and mean that if direct costs of production rise, then businesses will be forced to take extra measures to prevent this, and that the most likely outcome is the reduction of employees.

This is the very foundation of the arguments against the NMW, as many believe that the minimum wage increase's these indirect costs, thus leading to unemployment. However, recent journals such as the one by Levin-Waldman and McCarthy (1998) and studies by Card and Krueger (1995) and Ehrenberg (1995, 827-49) refute this claim, instead they argue that the NMW has had no influence over employment levels and even state that due to greater work incentives, unemployment has actually decreased. Overall, there are two common opinions and attitudes towards the affects of the NMW on employment.

The first being the basic textbook approach that the NMW will and has had a negative affect on employment, often this has been founded on a theoretical basis, and the work produced by Brown, et al (1982) is also cited to reiterate this claim. The second is a much more modern approach that states that employment has not been influenced by the NMW, this opinion has been found upon more empirical research, especially that of Card and Krueger (1995).Brown, Gilroy and Kohen (1982) conducted research to test the assumption of the negative impact of the NMW on employment, they carried out a sample cross-sectional and time-series study to test the impact that a rise in minimum wages had on US firms.

In order to achieve this they analysed the employment trends and patterns before and after the NMW rose. The findings of this study supported the traditional economic theory by concluding that employment especially for the young and low skilled would be decreased, in the wake of minimum wage rises. In fact Brown et al found that a 10% rise in the NMW would result in a 1-3% reduction in teenage employment (Philpott, 1996). This research appears as the source of many textbook models and literature that are adverse to the NMW.

Many authors such as Freeman (1994) and Shaheed (1994) echo and support this research, but few have actually offered any new models or research of their own. Quotes such as "the minimum wage was a major cause of joblessness among the young" (Freeman, 1994) clearly shows that they are in favour of the text book and orthodox model offered by Brown et al., however they offer little new evidence or arguments to support this claim. However the validity and results of the research by Brown has