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The Employment Effects of the October 2003 Increase in the National Minimum Wage

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  • Richard Dickens

    (Queen Mary, University of London)

  • Mirko Draca

    (Centre for Economic Performance, London School of Economics)

Abstract

Initial research on the employment impact of the introduction of the National Minimum Wage has shown no evidence of any significant employment loss (Stewart, 2002, 2003, 2004). Against this background the NMW was raised substantially in October 2003 from £4.20 to £4.50 and again in October 2004 to £4.85. These are quite large increases in the NMW and they have been predicted to raise the wages for a substantial proportion of employees in the UK. Some concerns have been raised in the business community about the size of these increases, with some large employers claiming that for the first time the NMW will affect their pay structures. In this report we examine the impact of the October 2003 increase in the NMW on employment. We use a methodology first proposed by Linneman (1982) and used more recently by Stewart (2003, 2004) to examine the introduction of the minimum wage. This essentially examines individual transitions out of employment, comparing a group of workers directly affected by the NMW with a similar but unaffected group.

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Paper provided by Queen Mary, University of London, School of Economics and Finance in its series Working Papers with number 532.

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Date of creation: May 2005
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Handle: RePEc:qmw:qmwecw:wp532

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Keywords: Minimum wages; Employment transitions; Wages;

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  1. Kramarz, Francis & Philippon, Thomas, 2000. "The Impact of Differential Payroll Tax Subsidies on Minimum Wage Employment," IZA Discussion Papers 219, Institute for the Study of Labor (IZA).
  2. Dickens, Richard & Alan Manning, 2003. "The Impact of the National Minimum Wage on the Wage Distribution in a Low-Wage Sector," Royal Economic Society Annual Conference 2003 60, Royal Economic Society.
  3. Stewart, Mark B, 2002. " Estimating the Impact of the Minimum Wage Using Geographical Wage Variation," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 64(0), pages 583-605, Supplemen.
  4. Stephen Machin & Alan Manning, 1992. "Minimum Wages," CEP Discussion Papers dp0080, Centre for Economic Performance, LSE.
  5. Mark B. Stewart, 2004. "The employment effects of the national minimum wage," Economic Journal, Royal Economic Society, vol. 114(494), pages C110-C116, 03.
  6. Richard Dickens & Alan Manning, 2002. "Has the national minimum wage reduced UK wage inequality?," LSE Research Online Documents on Economics 20079, London School of Economics and Political Science, LSE Library.
  7. Linneman, Peter, 1982. "The Economic Impacts of Minimum Wage Laws: A New Look at an Old Question," Journal of Political Economy, University of Chicago Press, vol. 90(3), pages 443-69, June.
  8. Mark B. Stewart, 2004. "The Impact of the Introduction of the U.K. Minimum Wage on the Employment Probabilities of Low-Wage Workers," Journal of the European Economic Association, MIT Press, vol. 2(1), pages 67-97, 03.
  9. Machin, Stephen & Alan Manning & Lupin Rahman, 2003. "Where Minimum Wage Bites Hard: The Introduction of the UK National Minimum Wage to a Low Wage Sector," Royal Economic Society Annual Conference 2003 145, Royal Economic Society.
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