HookThe minimum wage that didn't kill employment
When the UK introduced its first National Minimum Wage in April 1999 at £3.60/hr, opposition forecasts predicted catastrophic job losses — anywhere from 100,000 to 1,000,000 depending on which think tank you read. The textbook reason was simple: a wage floor above equilibrium causes excess supply of labour, i.e. unemployment.
The actual outcome: no measurable employment effect, real wages at the bottom decile rose meaningfully, productivity in low-wage sectors edged up rather than down (firms invested in capital, training, and efficiency rather than hiring fewer workers). The Card-Krueger New Jersey vs Pennsylvania finding, which had seemed surprising in the US in 1994, generalised. The orthodox MRP-only model of labour markets is incomplete.
ModelLabour as a derived demand
MRP (marginal revenue product) — the value the marginal worker adds to firm revenue. In a competitive labour market, wages settle at MRP. A wage floor above MRP causes unemployment. Simple.
Monopsony changes the story. When there's a single dominant employer in a local labour market (a town with one big factory, an NHS trust in a region), the employer can pay below MRP — that's textbook monopsony exploitation. A minimum wage between the monopsony wage and MRP actually raises employment, because the firm has been under-hiring. This is the standard explanation for why minimum wages haven't behaved like the orthodox model predicted.
Unions push the other way — they can raise wages above competitive levels via collective bargaining, with similar trade-offs. Elasticity of labour supply matters too: tight labour markets are different from slack ones.
ExamWhat examiners want
Use real numbers. NLW (April 2025) = £12.21/hr. Median UK full-time hourly wage ≈ £18.50/hr (ASHE 2024). The "bite" (NLW / median) = ≈ 66%. The textbook unemployment story applies more strongly the higher the bite — at bite ≈ 30% (rare US states), no measurable effect; at bite ≈ 50% (UK now), small effects; at hypothetical bite ≈ 80%, large effects.
Strong evaluation acknowledges that the right answer to "does a minimum wage cause unemployment" is "it depends on the bite and the structure of the local labour market". That's the move that gets the top band.