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Where Minimum Wage Bites Hard: The Introduction of the UK National Minimum Wage to a Low Wage Sector

Author

Listed:
  • Machin, Stephen

    (UCL & CEP London School of Economics)

  • Alan Manning
  • Lupin Rahman

Abstract

Between 1993 and April 1999 there was no minimum wage in the UK (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 mployment. Our results suggest that the minimum wage raised the wages of a large number of care homes 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.

Suggested Citation

  • 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.
    • Handle: RePEc:ecj:ac2003:145
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    JEL classification:

    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
    • J4 - Labor and Demographic Economics - - Particular Labor Markets
    • J8 - Labor and Demographic Economics - - Labor Standards

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