National Minimum Wages (NMW)

Exam code: 2281

Written by: Ashika|Reviewed by: Caroline Carroll|Updated 2 July 2026

Government policy: minimum wages

Government's often intervene in the labour market by setting a minimum wage
- They do this in order to improve equity and avoid the exploitation of worker
A minimum wage is a legally imposed wage level that employers must pay their workers
- It is set above the market rate
- The minimum wage/hour often varies based on age

Graph showing wage rate per hour and quantity of truck drivers, with supply, demand, equilibrium wage $W_e$, and minimum wage $W_1$. — A national minimum wage (NMW1) is imposed above the market wage rate (We) at W1

Diagram analysis

The market equilibrium wage and quantity for truck drivers in the UK is seen at W_eQ_e
The government imposes a national minimum wage (NMW) at W₁
Incentivised by higher wages, the supply of labour increases from Q_e to Q_s
Facing higher production costs, the demand for labour by firms decreases from Q_e to Q_d
This means that at a wage rate of W₁ there is excess supply of labour and the potential for unemployment equal to Q_dQ_s

Case study

Switzerland’s National Minimum Wage

In 2020, voters in the canton of Geneva, Switzerland, approved the introduction of the world’s highest legal minimum wage at CHF 23 per hour (about USD $25). The measure was introduced to address concerns over the high cost of living in the region, particularly rent and food prices, which were making it difficult for low‑income workers to afford basic needs.

Impact on labour supply and demand

Supply of labour
- The higher legal wage encouraged more workers — including cross‑border commuters from France — to seek jobs in Geneva, increasing the supply of labour
Demand for labour
- Some small businesses, especially in hospitality and retail, reported reducing staff hours or delaying hiring to cope with higher wage bills, leading to a fall in labour demand
Potential unemployment
- In sectors heavily reliant on low‑paid labour, such as cleaning services, there were fears of an increase in unemployment if firms could not afford to retain all staff at the higher wage

Equity effects

Supporters argued that the minimum wage improved fairness by ensuring workers earned a living income, reducing the risk of in‑work poverty
Critics warned that it might harm job prospects for young and less‑skilled workers if firms cut roles to save costs

Lesson for policy

Switzerland’s example highlights the trade‑off governments face
- A national minimum wage can raise incomes for the lowest‑paid
- But if set significantly above the market equilibrium, it risks creating excess supply of labour and unemployment in vulnerable sectors

Government policy: minimum wages

Government policy: minimum wages

Diagram analysis

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