Minimum Wage, Minimum Impact

Richard Dickens and Alan Manning

Chapter 13 in The Labour Market Under New Labour, 2003, pp 201-213 from Palgrave Macmillan

Abstract: Abstract The Low Pay Commission (LPC), acting on advice from the Office for National Statistics, initially estimated that some 1.9 million workers (8.5 per cent of employees) would have their pay raised by the introduction of the National Minimum Wage (NMW). In the light of data problems this has been revised downwards a number of times and now stands at 1.2 million workers (5 per cent). This is still likely to be an over-estimate of the number of workers affected. We find, that at most, 3.7 per cent (815,000) of adult workers received a pay rise. The LPC have recommended future increases in the NMW to £4.50 in October 2003 and £4.85 in October 2004. They estimate that some 1.3 million workers will be affected by the first increase and 1.7 million by the second. While these are substantial real increases, we believe that these are over-estimates of the number of workers affected. Despite fears of wage rises further up the pay distribution if other workers attempt to restore pay differences, we find little evidence of spillover effects from the NMW. There is no discernable impact of introduction of the NMW on aggregate employment. However, in the care home sector, the lowest paying sector in Britain, the NMW had a huge effect on pay, raising the wages of 30 per cent of workers. This resulted in small falls in employment in this sector. The NMW has modest effects on household incomes and poverty. It should be seen in the context of a range of policies designed to make work pay. Despite the fact that three-quarters of the beneficiaries of the NMW are women the impact on the gender pay gap is small. The difference between average wages of men and women was closed by about 0.5 percentage points.

Keywords: Minimum Wage; Hourly Wage; Wage Distribution; Labour Force Survey; Hourly Rate (search for similar items in EconPapers)
Date: 2003
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Citations: View citations in EconPapers (17)

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DOI: 10.1057/9780230598454_14

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