In this essay I will provide explanations and evaluate why
the government should and shouldn’t intervene to increase the disposable income
of personnel whom collect a low annual wage. Disposable
income, also known as disposable personal income, is the quantity of money that
households have accessible for spending or saving after income taxes, national
insurance and other payments have been deducted. (Investopedia 2017) Disposable
personal income is frequently observed as a factor of the various central
economic indicators utilised to measure the overall state of the economy. It is
the most efficient assessment we can make use of to observe how deviations in
annual household income influence consumption. The government can intervene to
raise the income in many ways, through increasing the minimum wage policy, reducing
the tax on the poor and increasing benefits.
The first reason for raising the income of workers on low pay,
is to diminish relative poverty, which reflects inequality within society. This
inequality derives from unbalanced opportunities like high earning/middle class
parents being able to have the financial resources to send their children to
private school in or to receive a higher level of education which results in a
higher annual salary for the future, this could be a future cycle that gets
relayed down from generation to generation.(Sloman J 2015) Thus, increasing incomes
of the low earning the government is helping to reduce inequality.
inequality also has some real-world economic disputes, along with ethical validations.
Income inequality might exaggerate feelings of hostility within society; which
in result may cause issues like; crime, vandalism and strain within society.
Low pay workers income being increased could generate a
larger incentive for low paid workers to migrate from benefits to paid work, it
reduces their dependability on benefits and enables individuals to earn a wage
they would benefit from, the current minimum wage in the UK is £7.50 for those
over 25 (Government services 2017) and with the current economic growth within
the UK seems to be growing exponentially. If wages remain low, personnel are stimulated
to stay persistent on benefits from unemployment and income support. (Pettinger
2017) Overtime an increase in wages for low workers may salvage the government
from reimbursing benefits and condensing the poverty trap.
The disposable income of workers in areas such as Scotland
is greater than that of personnel who are based in London due to the fact that
living costs are a lot higher because of rent and tenant expenses, based on a
report written by resolution foundation discloses employees north of the border
are distinctively grossing more than their southern counterparts.(Brooks L
2016) This subsequently lead to the living standard in the north/ Scotland being
greater and growing faster than in the south.
The overall minimum
pay in Scotland is still below national average threshold with one in 5 earning
below the national threshold, but the low housing costs in Scotland and high
housing cost in London, subsidises the below par national minimum wage in Scotland
and therefore contributes to the disposable income of workers in Scotland being
greater than that of London. (Brooks L 2016) This also indicates that minimum
wage is not the only contributor/one of the ways to intervene to raise the disposable
income of workers.
Higher wages build up the practicality and enthusiasm
of workers, along with bringing loyalty to a firm due to the financial incentive
being provided; efficiency wage theory.
reason for personnel receiving low pay could be because of monopolistic
employers that manipulate their monopoly power to reimburse lower wages than
market forces. (Pettinger 2010) Consequently the government can counter monopsony
power amongst employers, if the government increase wages through the minimum
wage policy then unemployment will not occur