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Minimum Wages and Wage Inequality: Some Theory and an Application to the UK

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  • Tim Butcher
  • Richard Dickens
  • Alan Manning

Abstract

Research suggests that, at the levels set in countries like the US and the UK, minimum wages have little effect on employment but do have impacts on wage inequality. However we lack models that can explain these facts - this paper presents one based on imperfect labour markets. The paper also investigates the impact of the UK's National Minimum Wage on wage inequality finding it can explain a sizeable part of the evolution of wage inequality in the bottom half of the distribution in the period 1998-2010. We also present evidence that the impact of the NMW reaches up to 40% above the NMW in 2010 which corresponds to the 25th percentile. These spillovers are larger in low-wage segments.

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Bibliographic Info

Paper provided by Centre for Economic Performance, LSE in its series CEP Discussion Papers with number dp1177.

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Date of creation: Nov 2012
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Handle: RePEc:cep:cepdps:dp1177

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

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Keywords: Minimum Wage; Wage Inequality;

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  1. Kosali Ilayperuma Simon & Robert Kaestner, 2004. "Do minimum wages affect non-wage job attributes? Evidence on fringe benefits," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 58(1), pages 52-70, October.
  2. David H. Autor & Alan Manning & Christopher L. Smith, 2010. "The Contribution of the Minimum Wage to U.S. Wage Inequality over Three Decades: A Reassessment," CEP Discussion Papers, Centre for Economic Performance, LSE dp1025, Centre for Economic Performance, LSE.
  3. David Card & Alan Krueger, 1993. "Minimum Wages and Employment: A Case Study of the Fast Food Industry in New Jersey and Pennsylvania," Working Papers, Princeton University, Department of Economics, Industrial Relations Section. 694, Princeton University, Department of Economics, Industrial Relations Section..
  4. Maarten Goos & Alan Manning, 2003. "Lousy and Lovely Jobs: the Rising Polarization of Work in Britain," CEP Discussion Papers, Centre for Economic Performance, LSE dp0604, Centre for Economic Performance, LSE.
  5. Jean Baldwin Grossman, 1983. "The Impact of the Minimum Wage on Other Wages," Journal of Human Resources, University of Wisconsin Press, vol. 18(3), pages 359-378.
  6. Meyer, Robert H & Wise, David A, 1983. "Discontinuous Distributions and Missing Persons: The Minimum Wage and Unemployed Youth," Econometrica, Econometric Society, Econometric Society, vol. 51(6), pages 1677-98, November.
  7. Christopher J. Flinn, 2006. "Minimum Wage Effects on Labor Market Outcomes under Search, Matching, and Endogenous Contact Rates," Econometrica, Econometric Society, Econometric Society, vol. 74(4), pages 1013-1062, 07.
  8. David S. Lee, 1999. "WAGE INEQUALITY IN THE UNITED STATES DURING THE 1980s: RISING DISPERSION OR FALLING MINIMUM WAGE?," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 114(3), pages 977-1023, August.
  9. DiNardo, John & Fortin, Nicole M & Lemieux, Thomas, 1996. "Labor Market Institutions and the Distribution of Wages, 1973-1992: A Semiparametric Approach," Econometrica, Econometric Society, Econometric Society, vol. 64(5), pages 1001-44, September.
  10. repec:nsr:niesrd:378 is not listed on IDEAS
  11. Burdett, Kenneth & Mortensen, Dale T, 1998. "Wage Differentials, Employer Size, and Unemployment," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(2), pages 257-73, May.
  12. Alan B. Krueger & David Card, 2000. "Minimum Wages and Employment: A Case Study of the Fast-Food Industry in New Jersey and Pennsylvania: Reply," American Economic Review, American Economic Association, American Economic Association, vol. 90(5), pages 1397-1420, December.
  13. Meyer, Robert H & Wise, David A, 1983. "The Effects of the Minimum Wage on the Employment and Earnings of Youth," Journal of Labor Economics, University of Chicago Press, University of Chicago Press, vol. 1(1), pages 66-100, January.
  14. Richard Dickens & Rebecca Riley & David Wilkinson, 2011. "The UK Minimum Wage at Age 22: A Regression Discontinuity Approach," Working Paper Series 2111, Department of Economics, University of Sussex.
  15. William Wascher & David Neumark, 2000. "Minimum Wages and Employment: A Case Study of the Fast-Food Industry in New Jersey and Pennsylvania: Comment," American Economic Review, American Economic Association, American Economic Association, vol. 90(5), pages 1362-1396, December.
  16. Arindrajit Dube & T. William Lester & Michael Reich, 2010. "Minimum Wage Effects Across State Borders: Estimates Using Contiguous Counties," The Review of Economics and Statistics, MIT Press, vol. 92(4), pages 945-964, November.
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Cited by:
  1. Finn Martensen, 2014. "Routinization and the Decline of the U.S. Minimum Wage," Working Paper Series of the Department of Economics, University of Konstanz, Department of Economics, University of Konstanz 2014-16, Department of Economics, University of Konstanz.
  2. Salverda, Wiemer & Checchi, Daniele, 2014. "Labour-Market Institutions and the Dispersion of Wage Earnings," IZA Discussion Papers 8220, Institute for the Study of Labor (IZA).

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