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Did the National Minimum Wage Affect UK Prices?

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Author Info
Jonathan Wadsworth

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Abstract

One potential channel through which the effects of the minimum wage could be directed isthat firms who employ minimum wage workers could have passed on any higher labour costsresulting from the minimum wage in the form of higher prices. This study looks at the effectsof the minimum wage on the prices of UK goods and services by comparing prices of goodsproduced by industries in which UK minimum wage workers make up a substantial share oftotal costs with prices of goods and services that make less use of minimum wage labour.Using sectoral-level price data matched to LFS survey data on the share of minimum wageworkers in each sector, it is hard to find much evidence of significant price changes in themonths that correspond immediately to the uprating of the NMW. However over the longerterm, prices in several minimum wage sectors - notably take-away foods, canteen meals,hotel services and domestic services - do appear to have risen significantly faster than pricesof non-minimum wage sectors. These effects were particularly significant in the four yearsimmediately after the introduction of the minimum wage.

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Paper provided by Centre for Economic Performance, LSE in its series CEP Discussion Papers with number dp0947.

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Date of creation: Aug 2009
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Handle: RePEc:cep:cepdps:dp0947

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Related research
Keywords: Minimum wage; prices;

Find related papers by JEL classification:
J6 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies

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  1. Hall, Simon & Walsh, Mark & Yates, Anthony, 2000. "Are UK Companies' Prices Sticky?," Oxford Economic Papers, Oxford University Press, vol. 52(3), pages 425-46, July.
  2. Mark Bils & Peter J. Klenow, 2004. "Some Evidence on the Importance of Sticky Prices," Journal of Political Economy, University of Chicago Press, vol. 112(5), pages 947-985, October.
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  3. Sara Lemos, 2008. "A Survey Of The Effects Of The Minimum Wage On Prices," Journal of Economic Surveys, Blackwell Publishing, vol. 22(1), pages 187-212, 02. [Downloadable!] (restricted)
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  4. Emi Nakamura & Jón Steinsson, 2008. "Five Facts about Prices: A Reevaluation of Menu Cost Models," The Quarterly Journal of Economics, MIT Press, vol. 123(4), pages 1415-1464, November. [Downloadable!] (restricted)
  5. Taylor, John B., 1999. "Staggered price and wage setting in macroeconomics," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 15, pages 1009-1050 Elsevier. [Downloadable!] (restricted)
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  6. Caplin, Andrew S & Spulber, Daniel F, 1987. "Menu Costs and the Neutrality of Money," The Quarterly Journal of Economics, MIT Press, vol. 102(4), pages 703-25, November. [Downloadable!] (restricted)
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  7. Lach, Saul & Tsiddon, Daniel, 1992. "The Behavior of Prices and Inflation: An Empirical Analysis of Disaggregated Price Data," Journal of Political Economy, University of Chicago Press, vol. 100(2), pages 349-89, April. [Downloadable!] (restricted)
  8. Mark B. Stewart, 2004. "The employment effects of the national minimum wage," Economic Journal, Royal Economic Society, vol. 114(494), pages C110-C116, 03. [Downloadable!] (restricted)
  9. Ricardo J. Caballero & Eduardo Engel, 2003. "Adjustment is Much Slower than You Think," NBER Working Papers 9898, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  10. Ball, Laurence & Mankiw, N. Gregory, 1994. "A sticky-price manifesto," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 41(1), pages 127-151, December. [Downloadable!] (restricted)
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  11. Mark B. Stewart & Joanna K. Swaffield, 2008. "The Other Margin: Do Minimum Wages Cause Working Hours Adjustments for Low-Wage Workers?," Economica, London School of Economics and Political Science, vol. 75(297), pages 148-167, 02. [Downloadable!] (restricted)
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  12. Jushan Bai & Pierre Perron, 2003. "Computation and analysis of multiple structural change models," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 18(1), pages 1-22. [Downloadable!]
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