The task
The introduction of a national minimum wage is increasingly debated in many countries in Europe: Germany has approved the introduction of a national minimum wage in July. Italy has been debating this for some years now. Other countries have already introduced it sometime ago, including the UK in 1999.
A newly appointed UK Minister for Work and Pensions, with no knowledge on this subject, will be meeting her counterparts at a EU summit, where she has been asked to brief them on the UK experience so far. The Minister has asked you to:
• Clarify what is the economic rationale behind the introduction of the minimum wage? What are the economic theories in favour and against the introduction of the minimum wage? (40%)
• What evaluation can be made of the UK experience? (40%)
• What conclusions would you draw on the introduction of the minimum wage and lessons for other countries? (20%).
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It should be stressed that this is major project. To obtain a high mark you will be expected to demonstrate original thought, research, wide reading and the application of high quality economic analysis.
In assessing your project, the marker will be looking for:

1. Evidence of understanding the economic principles, concepts, theories and the policy issues.
2. Addressing adequately all elements required by the question.
3. Degree of analysis and clarity of arguments.
4. Appropriate use of diagrams when necessary.
5. Appropriate style and presentation.
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Question 1
You are asked to set out the economic rationale for the minimum wage;
• Keep in mind the background context: the Minister is not very knowledgeable about this and needs to brief other EU Ministers.;
• She wants to understand the theory behind the NMW and which economic approaches explain it. (My suggestion – Concept of Minimum Wage; the removal of problem of poverty pay, wage inequality, income distribution by introducing minimum wage; Reasons for low pay; Advantages and disadvantages of Minimum Wage)
• This is both analytical and descriptive. What are the different approaches in theory and what do they say about the rationale for Government intervention to establish a NMW?;
(My suggestion:
theories against Minimum Wage such as perfect competitive markets (neoclassical);
theories in favour of Minimum Wage – Monopsony model (imperfect competitive markets, or market failures (neo Keynesian)), please ensure here you also discuss about efficiency wages and other implications that all arise from moving from the perfect competitive model).
• Presentation is key here. Try to put yourself in the Minister’s shoes: she will possibly read this document at night. You need to be succinct but also clear and accurate.
Question 2
You are asked assess the UK experience since the introduction of the NMW in 1999.
• This is also analytical and descriptive. You need to focus on the UK experience. Therefore, do carefully describe what happened in the UK and how the policy has evolved.
• You need to review the evidence on the impact of the minimum wage on the key variables of concern, linking this to the first question about the economic theories.
• Material from the class by Tim Butcher is a very good starting point.
• Again, presentation is important: be to the point, but clear and accurate!
(My suggestion – Policy changes in National Minimum Wage in UK; effects of UK National Minimum Wage rate on employment, wage inequality, inflation, productivity – These would need to come out from the discussion of the theories in previous section).
Question 3
You are asked to draw conclusions on the introduction of the minimum wage and lessons for other countries in EU.
• Here again, do not forget the background context: the Minister needs to brief other Ministers.
• There are two related aspects to the question but both need to be addressed: conclusions on the UK experience and applicability to other countries.
• Most importantly, your recommendations would need to rest on sound and robust analysis and evidence.
• You therefore need to link this part very clearly to the previous ones

Key reading and sources of information:
• Slides from Lecture 7 and 8
• The National Minimum Wage Low Pay Commission Reports https://www.gov.uk/government/collections/national-minimum-wage-low-pay-commission-reports
• The 2014 report is Available at https://www.gov.uk/government/publications/national-minimum-wage-low-pay-commission-report-2014
• Also look at evidence and references in Class By Tim Butcher next week. (available in PowerPoint the documents provided; please try also to use the materials/data he is referring in his presentation)
• Metcalf, David (2007) Why has the British national minimum wage had little or no impact on employment? CEPDP, 781. Centre for Economic Performance, London School of Economics and Political Science, London, UK. available at http://eprints.lse.ac.uk/19742/
• House of Lords Library Note Debate on 11 March The National minimum Wage and Poverty: The impact of the national minimum wage on household and poverty. Available online
• Riley and Bondibene – NIESR (2013) the impact of the national minimum wage on UK businesses. Available online at http://www.niesr.ac.uk/projects/impact-national-minimum-wage-uk-businesses
• https://www.gov.uk/government/publications/national-minimum-wage-impact-on-earnings-employment-and-hours-in-the-recession
Key Websites:
• https://www.gov.uk/government/organisations/low-pay-commission
• http://www.ons.gov.uk/ons/taxonomy/index.html?nscl=National+Minimum+Wage
• http://www.poverty.ac.uk/report-low-pay-minimum-wage/national-minimum-wage-has-reduced-wage-inequality

Recommended:
The Advantage Of The Minimum Wage
http://www.innovationfiles.org/minimum-wagemaximum-growth/
http://www.therealnews.com/t2/index.php?option=com_content&task=view&id=31&Itemid=74&jumival=5650&updaterx=2010-10-07+09%3A23%3A26