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Is the Minimum Wage Efficient? Evidence of the Effects of the UK National Minimum Wage in the Residential Care Homes Sector

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Author Info
Andreas P. Georgiadis ()
Abstract

In 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.

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Paper provided by Department of Economics, University of Bristol, UK in its series The Centre for Market and Public Organisation with number 06/160.

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Length: 38 pages
Date of creation: Aug 2006
Date of revision:
Handle: RePEc:bri:cmpowp:06/160

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Related research
Keywords: 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

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  8. 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. [Downloadable!] (restricted)
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