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Minimum Wage, Minimum Impact

In: The Labour Market Under New Labour

Author

Listed:
  • Richard Dickens
  • Alan Manning

Abstract

The Low Pay Commission (LPC), acting on advice from the Office for National Statistics, initially estimated that some 1.9 million workers (8.5 per cent of employees) would have their pay raised by the introduction of the National Minimum Wage (NMW). In the light of data problems this has been revised downwards a number of times and now stands at 1.2 million workers (5 per cent). This is still likely to be an over-estimate of the number of workers affected. We find, that at most, 3.7 per cent (815,000) of adult workers received a pay rise. The LPC have recommended future increases in the NMW to £4.50 in October 2003 and £4.85 in October 2004. They estimate that some 1.3 million workers will be affected by the first increase and 1.7 million by the second. While these are substantial real increases, we believe that these are over-estimates of the number of workers affected. Despite fears of wage rises further up the pay distribution if other workers attempt to restore pay differences, we find little evidence of spillover effects from the NMW. There is no discernable impact of introduction of the NMW on aggregate employment. However, in the care home sector, the lowest paying sector in Britain, the NMW had a huge effect on pay, raising the wages of 30 per cent of workers. This resulted in small falls in employment in this sector. The NMW has modest effects on household incomes and poverty. It should be seen in the context of a range of policies designed to make work pay. Despite the fact that three-quarters of the beneficiaries of the NMW are women the impact on the gender pay gap is small. The difference between average wages of men and women was closed by about 0.5 percentage points.

Suggested Citation

  • Richard Dickens & Alan Manning, 2003. "Minimum Wage, Minimum Impact," Palgrave Macmillan Books, in: Richard Dickens & Paul Gregg & Jonathan Wadsworth (ed.), The Labour Market Under New Labour, chapter 13, pages 201-213, Palgrave Macmillan.
  • Handle: RePEc:pal:palchp:978-0-230-59845-4_14
    DOI: 10.1057/9780230598454_14
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    Citations

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    Cited by:

    1. Tony Fang & Morley Gunderson & Carl Lin, 2021. "The impact of minimum wages on wages, wage spillovers, and employment in China: Evidence from longitudinal individual‐level data," Review of Development Economics, Wiley Blackwell, vol. 25(2), pages 854-877, May.
    2. Katalin Bodnár & Ludmila Fadejeva & Stefania Iordache & Liina Malk & Desislava Paskaleva & Jurga Pesliakaitė & Nataša Todorović Jemec & Peter Tóth & Robert Wyszyński, 2018. "How do firms adjust to rises in the minimum wage? Survey evidence from Central and Eastern Europe," IZA Journal of Labor Policy, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 7(1), pages 1-30, December.
    3. Aedin Doris & Donal O'Neill & Olive Sweetman, 2022. "The Introduction of a Living Wage in Ireland," Economics Department Working Paper Series n316-22.pdf, Department of Economics, National University of Ireland - Maynooth.
    4. Shanthi Nataraj & Francisco Perez-Arce & Krishna B. Kumar & Sinduja V. Srinivasan, 2014. "The Impact Of Labor Market Regulation On Employment In Low-Income Countries: A Meta-Analysis," Journal of Economic Surveys, Wiley Blackwell, vol. 28(3), pages 551-572, July.
    5. repec:iab:iabjlr:v:53:i:1:p:art.10 is not listed on IDEAS
    6. Damian Grimshaw, 2010. "United Kingdom: Developing a Progressive Minimum Wage in a Liberal Market Economy," Chapters, in: Daniel Vaughan-Whitehead (ed.), The Minimum Wage Revisited in the Enlarged EU, chapter 14, Edward Elgar Publishing.
    7. Bruttel, Oliver, 2019. "The effects of the new statutory minimum wage in Germany: a first assessment of the evidence," Journal for Labour Market Research, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany], vol. 53(1), pages .10(1-13).
    8. Armin Falk & Ernst Fehr & Christian Zehnder, "undated". "The Behavioral Effects of Minimum Wages," IEW - Working Papers 247, Institute for Empirical Research in Economics - University of Zurich.
    9. Bargain, Olivier & Doorley, Karina & Van Kerm, Philippe, 2018. "Minimum Wages and the Gender Gap in Pay: New Evidence from the UK and Ireland," IZA Discussion Papers 11502, Institute of Labor Economics (IZA).
    10. Bruttel, Oliver, 2019. "The effects of the new statutory minimum wage in Germany: a first assessment of the evidence," Journal for Labour Market Research, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany], vol. 53(1), pages 1-10.
    11. Roland Atzmüller, 2006. ""Workfare" statt sozialer Sicherheit? Arbeitsmarkt- und Sozialpolitik in Großbritannien unter New Labour," Wirtschaft und Gesellschaft - WuG, Kammer für Arbeiter und Angestellte für Wien, Abteilung Wirtschaftswissenschaft und Statistik, vol. 32(2), pages 191-207.
    12. BARGAIN Olivier & DOORLEY Karina & VAN KERM Philippe, 2016. "Minimum wages and the gender gap in pay. Evidence from the UK and Ireland," LISER Working Paper Series 2016-02, Luxembourg Institute of Socio-Economic Research (LISER).
    13. J. Shackleton, 2007. "Britain’s Labor Market Under the Blair Governments," Journal of Labor Research, Springer, vol. 28(3), pages 454-476, July.
    14. John Schmitt & David Rosnick, 2011. "The Wage and Employment Impact of Minimum-Wage Laws in Three Cities," CEPR Reports and Issue Briefs 2011-07, Center for Economic and Policy Research (CEPR).
    15. J. R. Shackleton, 2005. "The Labour Market Under ‘New Labour’: The First Two Terms," Economic Affairs, Wiley Blackwell, vol. 25(3), pages 31-38, September.

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