Is the Minimum Wage Efficient? Evidence of the Effects of the UK National Minimum Wage in the Residential Care Homes Sector
AbstractIn this paper we exploit a natural experiment provided by the 1999 introduction and 2001 increase of the UK National Minimum Wage (NMW) to investigate the relationship between wages and supervision and to test for efficiency wages considerations in a low-wage labour market, the UK residential care homes sector. We also provide evidence of the effects of the UK National Minimum Wage introduction and increase on the main labour market outcomes in the sector. We find evidence supporting a wage-supervision trade-off for the 1999 NMW introduction but no evidence of a trade-off for the 2001 NMW increase. We also find that the 1999 NMW introduction caused significant growth in average home hourly wages but only moderate negative employment effects and no significant effect on other outcomes as prices and profits. Finally, we find that the 2001 NMW increase generated higher wage growth than the 1999 introduction but had no employment effect, which can be possibly explained by the fact that homes increased the price of care to offset the increased wage costs generated by the NMW increase.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Department of Economics, University of Bristol, UK in its series The Centre for Market and Public Organisation with number 06/160.
Length: 38 pages
Date of creation: Aug 2006
Date of revision:
Efficiency Wages; National Minimum Wage; Difference-in-Differences; Insrumental Variables.;
Find related papers by JEL classification:
- J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy
- J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
- J48 - Labor and Demographic Economics - - Particular Labor Markets - - - Particular Labor Markets; Public Policy
This paper has been announced in the following NEP Reports:
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- repec:ner:carlos:info:hdl:10016/3305 is not listed on IDEAS
- Richard Dickens & Alan Manning, 2004.
"Has the national minimum wage reduced UK wage inequality?,"
Journal of the Royal Statistical Society Series A,
Royal Statistical Society, vol. 167(4), pages 613-626.
- Richard Dickens & Alan Manning, 2002. "Has The National Minimum Wage Reduced UK Wage Inequality?," CEP Discussion Papers dp0533, Centre for Economic Performance, LSE.
- Meyer, Bruce D, 1995.
"Natural and Quasi-experiments in Economics,"
Journal of Business & Economic Statistics,
American Statistical Association, vol. 13(2), pages 151-61, April.
- Brown, Charles, 1999. "Minimum wages, employment, and the distribution of income," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 32, pages 2101-2163 Elsevier.
- Levine, David I, 1992. "Can Wage Increases Pay for Themselves? Tests with a Production Function," Economic Journal, Royal Economic Society, vol. 102(414), pages 1102-15, September.
- Rebitzer, James B., 1995. "Is there a trade-off between supervision and wages? An empirical test of efficiency wage theory," Journal of Economic Behavior & Organization, Elsevier, vol. 28(1), pages 107-129, September.
- Daniel S. Hamermesh, 2002.
"International Labor Economics,"
NBER Working Papers
8757, National Bureau of Economic Research, Inc.
- Weiss, Andrew W, 1980. "Job Queues and Layoffs in Labor Markets with Flexible Wages," Journal of Political Economy, University of Chicago Press, vol. 88(3), pages 526-38, June.
- Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, vol. 74(3), pages 433-44, June.
- Metcalf, David, 1999. "The Low Pay Commission and the National Minimum Wage," Economic Journal, Royal Economic Society, vol. 109(453), pages F46-66, February.
- Erica L. Groshen & Alan B. Krueger, 1989.
"The structure of supervision and pay in hospitals,"
8907, Federal Reserve Bank of Cleveland.
- Sara Lemos, 2004. "The Effects Of The Minimum Wage On Wages And Employment In Brazil - A Menu Of Minimum Wage Variables," Labor and Demography 0403008, EconWPA.
- Krueger, Alan B, 1991. "Ownership, Agency, and Wages: An Examination of Franchising in the Fast Food Industry," The Quarterly Journal of Economics, MIT Press, vol. 106(1), pages 75-101, February.
- David Metcalf, 2004. "The impact of the national minimum wage on the pay distribution, employment and training," Economic Journal, Royal Economic Society, vol. 114(494), pages C84-C86, 03.
- Stephen Machin & Alan Manning & Lupin Rahman, 2003. "Where the Minimum Wage Bites Hard: Introduction of Minimum Wages to a Low Wage Sector," Journal of the European Economic Association, MIT Press, vol. 1(1), pages 154-180, 03.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Jacqui Barton).
If references are entirely missing, you can add them using this form.