IDEAS home Printed from
   My bibliography  Save this paper

Is the Minimum Wage Efficient? Evidence of the Effects of the UK National Minimum Wage in the Residential Care Homes Sector


  • Andreas P. Georgiadis



In this paper we exploit a natural experiment provided by the 1999 introduction and 2001 increase of the UK National Minimum Wage (NMW) to investigate the relationship between wages and supervision and to test for efficiency wages considerations in a low-wage labour market, the UK residential care homes sector. We also provide evidence of the effects of the UK National Minimum Wage introduction and increase on the main labour market outcomes in the sector. We find evidence supporting a wage-supervision trade-off for the 1999 NMW introduction but no evidence of a trade-off for the 2001 NMW increase. We also find that the 1999 NMW introduction caused significant growth in average home hourly wages but only moderate negative employment effects and no significant effect on other outcomes as prices and profits. Finally, we find that the 2001 NMW increase generated higher wage growth than the 1999 introduction but had no employment effect, which can be possibly explained by the fact that homes increased the price of care to offset the increased wage costs generated by the NMW increase.

Suggested Citation

  • Andreas P. Georgiadis, 2006. "Is the Minimum Wage Efficient? Evidence of the Effects of the UK National Minimum Wage in the Residential Care Homes Sector," The Centre for Market and Public Organisation 06/160, Department of Economics, University of Bristol, UK.
  • Handle: RePEc:bri:cmpowp:06/160

    Download full text from publisher

    File URL:
    Download Restriction: no

    References listed on IDEAS

    1. Metcalf, David, 1999. "The Low Pay Commission and the National Minimum Wage," Economic Journal, Royal Economic Society, vol. 109(453), pages 46-66, February.
    2. Juan Dolado & Francis Kramarz & Steven Machin & Alan Manning & David Margolis & Coen Teulings, 1996. "The Economic Impact of Minimum Wages in Europe," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00353896, HAL.
    3. Daniel S. Hamermesh, 2002. "International Labor Economics," Journal of Labor Economics, University of Chicago Press, vol. 20(4), pages 709-732, October.
    4. Levine, David I, 1992. "Can Wage Increases Pay for Themselves? Tests with a Production Function," Economic Journal, Royal Economic Society, vol. 102(414), pages 1102-1115, September.
    5. repec:hal:journl:halshs-00353896 is not listed on IDEAS
    6. Richard Dickens & Alan Manning, 2004. "Has the national minimum wage reduced UK wage inequality?," Journal of the Royal Statistical Society Series A, Royal Statistical Society, vol. 167(4), pages 613-626.
    7. Brown, Charles, 1999. "Minimum wages, employment, and the distribution of income," Handbook of Labor Economics,in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 32, pages 2101-2163 Elsevier.
    8. 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.
    9. Meyer, Bruce D, 1995. "Natural and Quasi-experiments in Economics," Journal of Business & Economic Statistics, American Statistical Association, vol. 13(2), pages 151-161, April.
    10. Erica L. Groshen & Alan B. Krueger, 1990. "The Structure of Supervision and Pay in Hospitals," ILR Review, Cornell University, ILR School, vol. 43(3), pages 134-1-146-, April.
    11. Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, vol. 74(3), pages 433-444, June.
    12. Alan B. Krueger, 1991. "Ownership, Agency, and Wages: An Examination of Franchising in the Fast Food Industry," The Quarterly Journal of Economics, Oxford University Press, vol. 106(1), pages 75-101.
    13. Rebitzer, James B., 1995. "Is there a trade-off between supervision and wages? An empirical test of efficiency wage theory," Journal of Economic Behavior & Organization, Elsevier, vol. 28(1), pages 107-129, September.
    14. Weiss, Andrew W, 1980. "Job Queues and Layoffs in Labor Markets with Flexible Wages," Journal of Political Economy, University of Chicago Press, vol. 88(3), pages 526-538, June.
    15. Sara Lemos, 2004. "The Effects Of The Minimum Wage On Wages And Employment In Brazil - A Menu Of Minimum Wage Variables," Labor and Demography 0403008, EconWPA.
    16. David Metcalf, 2004. "The impact of the national minimum wage on the pay distribution, employment and training," Economic Journal, Royal Economic Society, vol. 114(494), pages 84-86, March.
    Full references (including those not matched with items on IDEAS)

    More about this item


    Efficiency Wages; National Minimum Wage; Difference-in-Differences; Insrumental Variables.;

    JEL classification:

    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
    • J48 - Labor and Demographic Economics - - Particular Labor Markets - - - Particular Labor Markets; Public Policy

    NEP fields

    This paper has been announced in the following NEP Reports:


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bri:cmpowp:06/160. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.