The national living wage, the minimum wage for 25-year-olds and over, is expected to rise to more than £10.50 an hour in 2024 compared with £8.72 in 2020 - Edexcel - A-Level Economics A - Question 7 - 2021 - Paper 1

Introduction to Minimum Wage The national living wage serves as a legally enforced wage floor intended to protect workers by ensuring a minimum income level. While an increase in the minimum wage can bring some benefits, there are significant disadvantages, particularly in specific sectors like social care.

Higher Costs for Employers An increase in the national living wage from £8.72 to over £10.50 represents a substantial rise that translates to higher labour costs for employers in the social care sector. These increased costs may force employers to reduce their workforce or cut back on services, leading to potential employment loss.

Impact on Employment The increase could lead to a contraction in demand for labour in the social care sector. Employers who cannot afford to pay higher wages may choose to hire fewer workers or may opt for automation, which may lead to increased unemployment.

Reduced Hours and Increased Workload To manage increased wage costs without significantly impacting their budgets, employers may also reduce working hours for existing employees. This can lead to increased workloads for remaining staff, potentially affecting job satisfaction and service quality.

Market Dynamics and Elasticity The wage elasticity of demand in social care is relatively inelastic, meaning that small changes in wages can lead to substantial changes in employment. Thus, higher wages could disproportionately affect employment levels in this sector, causing fewer job opportunities.

Increased Prices for Services Employers may offset higher wage costs by increasing the prices of services offered. This could reduce accessibility for vulnerable populations who rely on social care services, diminishing the overall welfare benefits intended by the wage increase.

Conclusion While the intent behind raising the national living wage is to improve living standards, the potential disadvantages in specific sectors such as social care highlight the importance of considering employment dynamics and market conditions. A balanced approach must be taken to ensure that such wage policies do not result in unintended negative consequences.