Redemption after that diabolical 25 marker- would you recommend that the government implement a further substantial increase in the National Living Wage?

The 25 marker in the mock exam went badly in two ways: these are excuses. Firstly, in my defence, we have not covered it in class yet. And secondly, perhaps more importantly, I was not equipped with the right exam technique and did not realise how crucial it is to focus on the extracts that you are given. Oh well, we shall learn and only get better: true passion, like capital, only grows with investment.

Would you recommend that the government implement a further substantial increase in the National Living Wage? [25 marks]

The national living wage aims to improve the quality of life of individuals by providing a minimum wage for employees aged 25 and over. This is done through the implementation of a "price floor" in the labour market, by government, with an aim to push wage rates to a higher level. Having considered the extracts, I believe that a further substantial increase in the National Living Wage (NLW) at this time should not be implemented. Instead, a more modest and targeted approach would be more appropriate.

One reason in favour of increasing the NLW is its positive effect on real incomes for the lowest earners. Extract A says that the bottom 40% of earners saw real earnings growth after the NLW was introduced, while the top 60% saw their real earnings fall. This supports the view that the NLW has helped reduce income inequality, as also reflected in extract b, where the gini coefficient declined from 0.347 in 2006–07 to 0.322 in 2016–17. Therefore by raising the NLW can help tackle relative poverty, defined as income below 60% of the national median. Increasing the NLW increases the disposable income that individuals have, which can increase consumption, a component of aggregate demand, especially given the higher marginal propensity to consume among low-income workers. Additionally, from a supply-side perspective, extract d notes that higher wages may increase worker motivation, reduce absenteeism and turnover, and boost productivity. This may offset some of the extra cost burden for firms.

However, increased costs to firms may raise concern. According to extract d, the OBR estimated that a higher NLW could lead to 60,000 job losses. This reflects the classical economic theory of the minimum wage: if a wage floor is set above the equilibrium wage, a surplus of labour may occur (unemployment). This will lead to low-skilled, routine jobs, which are easier to automate becoming redundant. As technology advances, firms may substitute labour with capital, especially if labour costs rise significantly. The long-term structural unemployment created could exacerbate inequalities, particularly in regions where the local labour market is already weak. This opportunity cost can be represented by a production possibility frontier, where firms may be required to make tough choices:

It is also important to argue that the elasticity of demand for labour plays a key role here. In sectors where demand for labour is wage elastic, such in retail, a higher NLW could result in large employment losses. Conversely, in sectors with inelastic demand, the effects may be limited. Nonetheless, the risk of job losses is non-trivial and could harm the very groups the policy aims to help. (Could quickly draw 2 demand for labour curves, elastic vs inelastic with different responses to wage increases but that'll take two long for paint online). 

Another weakness of the NLW as a tool to reduce poverty is that it is not well targeted. Extract d states that only 22% of low-paid workers are in the bottom 20% of households. Many of the poorest households are workless due to unemployment, disability, or other factors. Therefore, a higher NLW would not reach these groups.

Productivity in the UK has grown by only 2 or 3% over the last decade(extract d), indicating that wage growth has outstripped productivity in some sectors. If real wages increase without corresponding productivity gains, unit labour costs rise, potentially leading to cost-push inflation or reduced firm competitiveness.

(online paint way too hard to draw on)

Extract b notes that global economic growth is expected to slow due to rising protectionism and Brexit-related uncertainty. In such a climate, UK firms are already facing lower export demand and profit margins. A further rise in the NLW might exacerbate cost pressures, reduce business investment, and lead to higher prices or job cuts. With inflation already a concern in recent years, policymakers should be cautious about imposing additional cost burdens.

In conclusion, although the NLW has improved income distribution and helped low earners, the evidence suggests that a further substantial rise could do more harm than good. The risks to employment, especially for vulnerable workers in routine jobs, and the poor targeting of the policy undermine its effectiveness as a poverty-reduction strategy. Moreover, the macroeconomic environment(weak productivity and global uncertainty) makes a large wage hike ill-timed.A better approach would be a moderate, phased increase, tied to productivity growth, alongside stronger welfare support and targeted regional policies. Investment in skills, training, and education would also help workers move into higher-value sectors and improve long-term living standards without risking job losses.

Unmarked essay, but might have a good few points to steal!