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

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Author Info

  • Richard Dickens

    ()
    (Department of Economics, University of Sussex, UK)

  • Alan Manning

    (Centre for Economic Performance, London School of Economics, UK)

  • Tim Butcher

    (Secretariat, Low Pay Commission, UK)

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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File URL: http://www.sussex.ac.uk/economics/documents/wps-45-2012-dickens.pdf
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Bibliographic Info

Paper provided by Department of Economics, University of Sussex in its series Working Paper Series with number 4512.

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Date of creation: Dec 2012
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Handle: RePEc:sus:susewp:4512

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Keywords: Minimum Wage; Wage Inequality;

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References

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  1. Dinardo, J. & Fortin, N.M. & Lemieux, T., 1994. "Labor Market Institutions and the Distribution of Wages, 1973-1992: A Semiparametric Approach," Cahiers de recherche, Centre interuniversitaire de recherche en économie quantitative, CIREQ 9406, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
  2. David Card & Alan B. Krueger, 1993. "Minimum Wages and Employment: A Case Study of the Fast Food Industry in New Jersey and Pennsylvania," NBER Working Papers 4509, National Bureau of Economic Research, Inc.
  3. Dube, Andrajit & Lester, T. William & Reich, Michael, 2010. "Minimum Wage Effects Across State Borders: Estimates Using Contiguous Counties," Institute for Research on Labor and Employment, Working Paper Series, Institute of Industrial Relations, UC Berkeley qt86w5m90m, Institute of Industrial Relations, UC Berkeley.
  4. David Autor & Alan Manning & Christopher L. Smith, 2010. "The contribution of the minimum wage to U.S. wage inequality over three decades: a reassessment," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 2010-60, Board of Governors of the Federal Reserve System (U.S.).
  5. 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, ILR Review, Cornell University, ILR School, vol. 58(1), pages 52-70, October.
  6. Richard Dickens & Rebecca Riley & David Wilkinson, 2011. "The UK Minimum Wage at Age 22: A Regression Discontinuity Approach," Working Paper Series, Department of Economics, University of Sussex 2111, Department of Economics, University of Sussex.
  7. 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.
  8. 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.
  9. repec:nsr:niesrd:378 is not listed on IDEAS
  10. Maarten Goos & Alan Manning, 2007. "Lousy and Lovely Jobs: The Rising Polarization of Work in Britain," The Review of Economics and Statistics, MIT Press, MIT Press, vol. 89(1), pages 118-133, February.
  11. Robert H. Meyer & David A. Wise, 1981. "Discontinuous Distributions and Missing Persons: The Minimum Wage and Unemployed Youth," NBER Working Papers 0711, National Bureau of Economic Research, Inc.
  12. 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.
  13. Jean Baldwin Grossman, 1983. "The Impact of the Minimum Wage on Other Wages," Journal of Human Resources, University of Wisconsin Press, University of Wisconsin Press, vol. 18(3), pages 359-378.
  14. 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.
  15. 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.
  16. 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.
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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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