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Where the Minimum Wage Bites Hard: Introduction of Minimum Wages to a Low Wage Sector

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Listed:
  • Stephen Machin

    (University College London and London School of Economics,)

  • Alan Manning

    (London School of Economics)

  • Lupin Rahman

    (London School of Economics,)

Abstract

Between 1993 and April 1999 there was no minimum wage in the United Kingdom (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 employment. Our results suggest that the minimum wage raised the wages of a large number of care home 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. (JEL: J4, J8) Copyright (c) 2003 The European Economic Association.

Suggested Citation

  • Stephen Machin & Alan Manning & Lupin Rahman, 2003. "Where the Minimum Wage Bites Hard: Introduction of Minimum Wages to a Low Wage Sector," Journal of the European Economic Association, MIT Press, vol. 1(1), pages 154-180, March.
  • Handle: RePEc:tpr:jeurec:v:1:y:2003:i:1:p:154-180
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    JEL classification:

    • J4 - Labor and Demographic Economics - - Particular Labor Markets
    • J8 - Labor and Demographic Economics - - Labor Standards

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