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

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  • Machin, Stephen

    (UCL & CEP London School of Economics)

  • 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 can be viewed as being very vulnerable to minimum wage legislation. We look at the impact on both wages and mployment. 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, though the estimated effects are not that sizable given how heavily the wage structure was affected.

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Bibliographic Info

Paper provided by Royal Economic Society in its series Royal Economic Society Annual Conference 2003 with number 145.

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Date of creation: 04 Jun 2003
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Handle: RePEc:ecj:ac2003:145

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  1. Sources of support for minimum wages
    by chris dillow in Stumbling and Mumbling on 2006-08-24 10:19:40
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Cited by:
  1. Stephen Machin & Olivier Marie, 2006. "Crime and benefit sanctions," Portuguese Economic Journal, Springer, vol. 5(2), pages 149-165, August.
  2. Draca, Mirko & Machin, Steve & Van Reenen, John, 2006. "Minimum Wages and Firm Profitability," CEPR Discussion Papers 5456, C.E.P.R. Discussion Papers.
  3. 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.
  4. Richard Dickens & Mirko Draca, 2005. "The Employment Effects of the October 2003 Increase in the National Minimum Wage," Working Papers 532, Queen Mary, University of London, School of Economics and Finance.
  5. Theodore Koutmeridis, 2013. "The Market for "Rough Diamonds": Information, Finance and Wage Inequality," CDMA Working Paper Series 201307, Centre for Dynamic Macroeconomic Analysis, revised 14 Oct 2013.
  6. Sara Lemos, 2004. "A Menu Of Minimum Wage Variables For Evaluating Wages and Employment Effects: Evidence From Brazil," Labor and Demography 0403009, EconWPA.
  7. Möller, Joachim & König, Marion, 2008. "Mindestlohneffekte des Entsendegesetzes? : eine Mikrodatenanalyse für die deutsche Bauwirtschaft (Minimum wage effects of the worker posting law? : a micro data analysis for the German construction s," Zeitschrift für ArbeitsmarktForschung - Journal for Labour Market Research, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany], vol. 41(2/3), pages 327-346.

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