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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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  • Stephen Machin
  • Alan Manning
  • Lupin Rahman

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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Bibliographic Info

Paper provided by Centre for Economic Performance, LSE in its series CEP Discussion Papers with number dp0544.

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Date of creation: Sep 2002
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Handle: RePEc:cep:cepdps:dp0544

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Web page: http://cep.lse.ac.uk/_new/publications/series.asp?prog=CEP

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  1. 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.
  2. Sue Fernie & Helen Gray, 2002. "Its a Family Affair: the Effect of Union Recognition and Human Resource Management on the Provision of Equal Opportunities in the UK," CEP Discussion Papers dp0525, Centre for Economic Performance, LSE.
  3. 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.
  4. Richard Dickens & Stephen Machin & Alan Manning, 1994. "The Effects of Minimum Wages on Employment: Theory and Evidence from the US," NBER Working Papers 4742, National Bureau of Economic Research, Inc.
  5. 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.
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Cited by:
  1. Sara Lemos, 2004. "The Effects of the Minimum Wage on Prices in Brazil," Labor and Demography 0403011, EconWPA.
  2. 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.
  3. 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).
  4. Stephen Nickell, 2004. "Poverty And Worklessness In Britain," Economic Journal, Royal Economic Society, vol. 114(494), pages C1-C25, 03.
  5. 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.
  6. Cawley, John & Grabowski, David C. & Hirth, Richard A., 2006. "Factor substitution in nursing homes," Journal of Health Economics, Elsevier, vol. 25(2), pages 234-247, March.

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