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Where the Minimum Wage Bites Hard: the Introduction of the UK National Minimum Wage to a Low Wage Sector

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Author Info
Stephen Machin
Alan Manning
Lupin Rahman

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Abstract

Between 1993 and April 1999 there was no minimum wage in the UK (except in agriculture). In this paper we study the effects of the introduction of a National Minimum Wage (NMW) in April 1999 on one heavily affected sector, the residential care homes industry. This sector contains a large number of low paid workers and as such is a sector one can view as being very vulnerable to minimum wage legislation. We look at the impact on both wages and employment. Our results suggest that the minimum wage raised the wages of a large number of care homes workers, causing a very big wage compression of the lower end of the wage distribution, thereby strongly reducing wage inequality. There is some evidence of employment and hours reductions after the minimum wage introduction, but there appears to be no effect on home closure.

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Paper provided by Centre for Economic Performance, LSE in its series CEP Discussion Papers with number 0544.

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Date of creation: Sep 2002
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Handle: RePEc:cep:cepdps:0544

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  1. Brown, Charles & Gilroy, Curtis & Kohen, Andrew, 1982. "The Effect of the Minimum Wage on Employment and Unemployment," Journal of Economic Literature, American Economic Association, vol. 20(2), pages 487-528, June. [Downloadable!] (restricted)
  2. repec:fth:prinin:300 is not listed on IDEAS
  3. Metcalf, David, 1999. "The Low Pay Commission and the National Minimum Wage," Economic Journal, Royal Economic Society, vol. 109(453), pages F46-66, February. [Downloadable!] (restricted)
  4. Lawrence Katz & Alan Krueger, 1992. "The Effect of the Minimum Wage on the Fast Food Industry," Working Papers 678, Princeton University, Department of Economics, Industrial Relations Section.. [Downloadable!]
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  5. David Card, 1992. "Using Regional Variation in Wages to Measure the Effects of the Federal Minimum Wage," Working Papers 680, Princeton University, Department of Economics, Industrial Relations Section.. [Downloadable!]
  6. S Machin & A Manning, 1992. "Minimum Wages," CEP Discussion Papers 080, Centre for Economic Performance, LSE.
  7. Dickens, Richard & Machin, Stephen & Manning, Alan, 1999. "The Effects of Minimum Wages on Employment: Theory and Evidence from Britain," Journal of Labor Economics, University of Chicago Press, vol. 17(1), pages 1-22, January. [Downloadable!] (restricted)
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  8. Daniel S. Hamermesh, 2002. "International Labor Economics," NBER Working Papers 8757, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  9. David Card, 1992. "Using regional variation in wages to measure the effects of the federal minimum wage," Industrial and Labor Relations Review, ILR Review, ILR School, Cornell University, vol. 46(1), pages 22-37, October.
  10. repec:fth:prinin:298 is not listed on IDEAS
  11. S Machin & A Manning & S Woodland, 1993. "Are Workers Paid their Marginal Product? Evidence from a Low Wage Labour Market," CEP Discussion Papers 0158, Centre for Economic Performance, LSE.
  12. Stewart, Mark B., 2002. "The Impact Of The Introduction Of The Uk Minimum Wage On The Employment Probabilities Of Low Wage Workers," The Warwick Economics Research Paper Series (TWERPS) 630, University of Warwick, Department of Economics. [Downloadable!]
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  13. David Card, 1992. "Using Regional Variation in Wages to Measure the Effects of the Federal Minimum Wage," NBER Working Papers 4058, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  1. Alison Booth & Mark L. Bryan, 2006. "Training, Minimum Wages and the Earnings Distribution," CEPR Discussion Papers 537, Centre for Economic Policy Research, Research School of Social Sciences, Australian National University. [Downloadable!]
  2. Addison, John T. & Siebert, W. Stanley, 2002. "Changes in Collective Bargaining in the U.K," IZA Discussion Papers 562, Institute for the Study of Labor (IZA). [Downloadable!]
  3. Stewart, Mark B. & Swaffield, Joanna K., 2006. "The other margin : do minimum wages cause working hours adjustments for low-wage workers?," The Warwick Economics Research Paper Series (TWERPS) 746, University of Warwick, Department of Economics. [Downloadable!]
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  4. Stephen Nickell, 2003. "Poverty and Worklessness in Britain," CEP Discussion Papers dp0579, Centre for Economic Performance, LSE. [Downloadable!]
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  5. Marit Hinnosaar & Tairi Rõõm, 2003. "The impact of minimum wage on the labour market in Estonia: an empirical analysis," Bank of Estonia Working Papers 2003-8, Bank of Estonia, revised 12 Oct 2003. [Downloadable!]
  6. John Cawley & David C. Grabowski & Richard A. Hirth, 2004. "Factor Substitution and Unobserved Factor Quality in Nursing Homes," NBER Working Papers 10465, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  7. Sara Lemos, 2004. "The Effects of the Minimum Wage on Prices in Brazil," Labor and Demography 0403011, EconWPA. [Downloadable!]
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