Economists are divided in their opinions about the effects of minimum wages. Some still follow early research that minimum wages have a small negative effect on employment, others have taken a following to more recent ‘before and after’ microeconomic studies which fail to identify any employment effect at all. Opinions about the impact of minimum wages on poverty are just as divided. Some believe minimum wages are very effective anti-poverty instruments, whilst others argue that minimum wages will simply raise the incomes of second-earners in relatively well-off households, whilst having no effects on the poor.

The impact of the NMW on employment, wage inequality and poverty is extremely difficult to identify not least because of poor employment data, especially data on hourly earnings. This essay will highlight the evidence presented in recent studies, and will attempt to shed light on a topic which is still very actively debated.

In conclusion, recent studies have found that the NMW has no significant impact on employment. In the residential care home sector however, a negative impact was found. This should not be generalised to other sectors as the care home sector is particularly prone to having a negative effect.

If policy makers follow an evidence-based policy making strategy, I believe they will eventually set a rate high enough to tackle inequality and wage poverty whilst having a negligible effect on employment. This is more likely to be done in conjunction with other policies such as the NDYP and in-works benefits.

Recent evidence on the impact of minimum wages on employment is mixed but does lean slightly towards having no significant effect. The introduction of the NMW was in part motivated by a desire to reverse the trend in wage inequality, and tackle poverty.

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