In indicators utilised to measure the overall state

In this essay I will provide explanations and evaluate whythe government should and shouldn’t intervene to increase the disposable incomeof personnel whom collect a low annual wage.                                                                                                          Disposableincome, also known as disposable personal income, is the quantity of money thathouseholds have accessible for spending or saving after income taxes, nationalinsurance and other payments have been deducted. (Investopedia 2017) Disposablepersonal income is frequently observed as a factor of the various centraleconomic indicators utilised to measure the overall state of the economy.

It isthe most efficient assessment we can make use of to observe how deviations inannual household income influence consumption. The government can intervene toraise the income in many ways, through increasing the minimum wage policy,reducing the tax on the poor and increasing benefits.The central most imperative tool in the governmentincreasing wages would be the minimum wage policy, increasing minimum wageswould directly increase the disposable income of workers on low pay.

We Will Write a Custom Essay Specifically
For You For Only $13.90/page!


order now

Thegovernment intervening to increase low paid workers has several benefits; itreduces inequality within society, higher wages may encourage greaterproductivity as more people are more motivated , increases incentives forunemployed to seek employment , reduces dependence on benefits and thegovernment can counter monopsony power amongst employers , I will evidentlyexplain all these within the following essay and assess the case for thegovernment intervening to raise the disposable income of workers. On the other hand,there are countless issues and arguments against the government intervening toraise the disposable income of workers a few of them being; higher wages causeunemployment in competitive markets, higher wages discourage firms frominvesting in the UK, government regulation can be costly, and a poverty trapmay be created by higher taxes and benefits that may also reduce incentives towork.                             MAINBODYThe first reason for raising the income of workers on low pay,is to diminish relative poverty, which reflects inequality within society. Thisinequality derives from unbalanced opportunities like high earning/middle classparents being able to have the financial resources to send their children toprivate school in or to receive a higher level of education which results in ahigher annual salary for the future, this could be a future cycle that getsrelayed down from generation to generation.

(Sloman J 2015) Thus, increasingincomes of the low earning the government is helping to reduce inequality.                                                                                                                 Diminishing inequality also has some real-world economic disputes, alongwith ethical validations. Income inequality might exaggerate feelings ofhostility within society; which in result may cause issues like; crime,vandalism and strain within society.Low pay workers income being increased could generate alarger incentive for low paid workers to migrate from benefits to paid work, itreduces their dependability on benefits and enables individuals to earn a wagethey would benefit from, the current minimum wage in the UK is £7.

50 for thoseover 25 (Government services 2017) and the current economic growth within theUK seems to be growing exponentially. If wages remain low, personnel arestimulated to stay persistent on benefits from unemployment and income support.(Pettinger 2017) Overtime an increase in wages for low workers may salvage thegovernment from reimbursing benefits and condensing the poverty trap.

HoweverIncreasing Benefits could also increase the disposable income of workers on lowpay as it accumulates to an individual’s post tax income, which amounts towardsthere disposable income. Income of workers on low pay are usually legallyentitled to receive government benefits such as housing benefits and cheaperprescriptions that would aid them in getting a higher quality of life and beingable to survive by adding to their annual income. The disposable income of workers in areas such as Scotlandis greater than that of personnel who are based in London since living costsare a lot higher because of rent and tenant expenses, based on a report writtenby resolution foundation it discloses employees north of the border aredistinctively grossing more than their southern counterparts. (Brooks L 2016)This subsequently lead to the living standard in the north/ Scotland beinggreater and growing faster than in the south.The overall minimum pay in Scotland is still below nationalaverage threshold with one in 5 earning below the national threshold, but thelow housing costs in Scotland and high housing cost in London, subsidises thebelow par national minimum wage in Scotland and therefore contributes to thedisposable income of workers in Scotland being greater than that of London.(Brooks L 2016) This also indicates that minimum wage is not the onlycontributor/one of the ways to intervene to raise the disposable income of workers,but environmental and location factors also have a role.

Higher annual wages build up the practicality andenthusiasm of workers, along with bringing loyalty to a firm due to thefinancial incentive being provided, as raising the level of pay for low paidworkers is proven to have a positive influence on their level of output; thisis the efficiency wage theory. TheKeynesian theorists argue that better wage rates will increase the disposableincome of low paid workers, of which a large proportion have a high propensityto consume. Therefore, they will increase their spending which in turn willoperate through their circular flow of income and spending.The reason for somepersonnel receiving low pay could be because of monopolistic employers thatmanipulate their monopoly power to reimburse lower wages than market forces.(Pettinger 2010) Consequently the government can counter monopsony poweramongst employers, if the government increase wages through the minimum wagepolicy then unemployment will not occur.More over reducing the taxes on poor is amethod to increase the disposable income of low paid workers indirectly, thiswould ensure that the lower paid workers usually the working class are taxedless (fall into a lower tax bracket) and therefore they have more money interms of savings consequently raising disposable income of workers. (Serafinoet al 2017) The average tax bill for low paid workers in the year ending 2016was around £7,600 in direct taxes this is equal to 18.

7% of their gross annualincome, eliminating income tax on the low paid would ensure that low paidworkers are able to invest and inject their disposable income back into the economy,by increasing spending. (Serafino et al 2017) Eliminating income tax would be amore effective anti-poverty strategy as it would increase living standards, andit would stop firms from divesting as they would not be affected by theelimination of income tax directly, Consequently, this would result in agreater disposable income of workers on low pay.                                                                                                                                            This graph includes the regression trend to reflect thegeneral optimistic relationship between the level of minimum wage and thefinancial welfare (percentage of the population economically thriving) ofindividuals in many different nations across the globe. The graph modestlyshows that as the level of minimum wage increases the economic welfare of thepopulation also increases.                                                           There are many reasons against the governmentintervening to raise the disposable income of workers on low pay, one of thembeing that a higher minimum wage kills of jobs as firms are legally entailed topay their employees a higher minimum wage they must compensate this by makingemployees redundant to keep the same wage bill on there balance sheet. Ifbusinesses did not get rid of employees, they would generate a lower rate ofannual revenue therefore lower profit. Because of this companies counteract bymaking the number of employees smaller, this supports the argument that anincrease in minimum wage essentially leads to a greater disposable income andthis may cause unemployment in competitive markets. This directs us to thepoint that higher wages discourage firms from investing in the UK.

Higher national wages may discourage firms frominvesting within the UK as they may not be able to afford the wages, thisforces firms to protect their revenue streams and relocate there headquarterselse where along with relocating their offices in countries where the minimumwage is significantly lower, therefore they do not need to pay employees thehigher minimum wage that is required and in the long run the firm has a greaterrevenue turnover.Increasing the national minimum wage may notalways reduce inequality, research shows that households in the middle classhave the biggest advantage from an increase in minimum wages, whereashouseholds in the bottom half/working class only attain 45% of the totalbenefits of higher minimum wage after tax and benefits have been deducted.(Equality trust 2015)

x

Hi!
I'm Casey!

Would you like to get a custom essay? How about receiving a customized one?

Check it out