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Competition policy and the minimum wage
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Governments also intervene to protect consumers from monopoly power and to protect low-paid workers.
Regulating competition
Governments aim to promote competition, limit monopoly power and protect consumers' interests.
They do this by investigating firms that abuse their market power (such as overcharging), banning collusion and cartels, and controlling mergers and takeovers that would reduce competition too much.
They do this by investigating firms that abuse their market power (such as overcharging), banning collusion and cartels, and controlling mergers and takeovers that would reduce competition too much.
The minimum wage
A minimum wage is a legal lowest hourly rate of pay.
Reasons: to reduce poverty among low-paid workers, to reduce exploitation and to encourage people to work.
To have an effect it is set above the equilibrium wage.
Reasons: to reduce poverty among low-paid workers, to reduce exploitation and to encourage people to work.
To have an effect it is set above the equilibrium wage.
Effects of the minimum wage
Advantages: higher incomes for low-paid workers, more incentive to work, possibly higher productivity and motivation.
Disadvantages: higher costs for firms, which may raise prices or employ fewer workers.
On a labour market diagram, a minimum wage above equilibrium means the supply of labour is greater than the demand, so some unemployment may result.
Disadvantages: higher costs for firms, which may raise prices or employ fewer workers.
On a labour market diagram, a minimum wage above equilibrium means the supply of labour is greater than the demand, so some unemployment may result.
At a minimum wage of £10 an hour, 5000 people want jobs but firms want only 4200 workers. What is the excess supply of labour?
- Supply − demand
- 5000 − 4200
Answer: 800 workers
Competition policy promotes competition, limits monopoly power, protects consumers and controls mergers. A minimum wage above equilibrium raises pay for the low-paid but may reduce employment.
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