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 the Minimum Wage
The national living wage acts as a legally enforced wage floor, which is the minimum amount workers must be paid in order to ensure a decent standard of living. Increasing the wage from £8.72 to over £10.50 represents a significant adjustment in compensation levels for low-income earners.

Impact on Employment in Specific Labour Market
A rise in the national living wage can lead to several disadvantages in the social care sector. Employers may respond to increased wage costs by reducing their workforce or cutting hours, potentially leading to unemployment or underemployment in this essential field. Higher wages do not guarantee job security; instead, they can result in a contraction in demand for labour as firms might not afford the increased wages, especially in sectors with tight profit margins.

Additional Costs to Employers
Employers in the social care sector may face challenges balancing the additional wage costs with their existing budget. For example, if a social care provider must allocate a larger portion of its resources to wages, it may have to reduce other operational costs, such as training, staff development, or even the quality of care provided.

Increased Pressure on Prices
To accommodate the increased wage costs, firms may raise the prices of services. This can create a downward spiral where the cost of care increases, limiting access for low-income populations who rely on these services. Higher prices can result in decreased demand for social care services, thus affecting overall employment in the sector.

Potential Reduction in Job Opportunities for Less Skilled Workers
A higher wage floor may discourage employers from hiring less skilled or inexperienced workers. If the minimum wage is set above the equilibrium wage for entry-level social care roles, it may lead to a situation where firms prefer to automate certain services or hire fewer employees with better qualifications, thus squeezing out opportunities for those entering the job market.

Conclusion
In conclusion, while the increase in the national living wage aims to improve living standards and reduce poverty, it can also have significant drawbacks within specific labour markets, such as social care. These include potential job losses, increased operational costs, price adjustments on services, and an overall decrease in access to essential care services. Evaluating these factors illustrates the complexity of setting minimum wages and highlights the need for a balanced approach that considers various economic dynamics.