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Why has the British national minimum wage had little or no impact on employment?

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  • David Metcalf
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    Abstract

    A century has passed since the first call for a British national minimum wage (NMW). That remarkable Fabian tract discussed wage setting, coverage, monopsony, international labour standards, inspection and compliance and the interaction between the NMW and the social security system. The NMW was finally introduced in 1999. It has raised the real and relative pay of low wage workers, narrowed the gender pay gap and now covers around 1-worker-in-10. The consequences for employment have been extensively analysed using information on individuals, areas and firms. There is little or no evidence of any employment effects. The reasons for this include: an impact on hours rather than workers; employer wage setting and labour market frictions; offsets via the tax credit system; incomplete compliance; improvements in productivity; an increase in the relative price of minimum wage-produced consumer services; and a reduction in the relative profits of firms employing low paid workers.

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    File URL: http://eprints.lse.ac.uk/19742/
    File Function: Open access version.
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    Paper provided by London School of Economics and Political Science, LSE Library in its series LSE Research Online Documents on Economics with number 19742.

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    Length: 92 pages
    Date of creation: Apr 2007
    Date of revision:
    Handle: RePEc:ehl:lserod:19742
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    Keywords: national minimum wage; employment; compliance;

    Find related papers by JEL classification:

    • J42 - Labor and Demographic Economics - - Particular Labor Markets - - - Monopsony; Segmented Labor Markets
    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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    1. Fitzner, Grant, 2006. "How have employees fared? Recent UK trends," MPRA Paper 4748, University Library of Munich, Germany.
    2. Alan Manning & Ted To, 2002. "Oligopsony and Monopsonistic Competition in Labor Markets," Journal of Economic Perspectives, American Economic Association, vol. 16(2), pages 155-174, Spring.
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    4. 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.
    5. Alan Manning, 1995. "How Do We Know That Real Wages Are Too High?," The Quarterly Journal of Economics, Oxford University Press, vol. 110(4), pages 1111-1125.
    6. Sara Connolly & Mary Gregory, 2002. "The National Minimum Wage and Hours of Work: Implications for Low Paid Women," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 64(s1), pages 607-631, 08.
    7. Mark B. Stewart, 2002. "Estimating the Impact of the Minimum Wage Using Geographical Wage Variation," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 64(s1), pages 583-605, 08.
    8. Stewart, Mark B & Swaffield, Joanna K, 2002. " Using the BHPS Wave 9 Additional Questions to Evaluate the Impact of the National Minimum Wage," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 64(0), pages 633-52, Supplemen.
    9. Metcalf, David, 1999. "The Low Pay Commission and the National Minimum Wage," Economic Journal, Royal Economic Society, vol. 109(453), pages F46-66, February.
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    11. Dickens, Richard & Machin, Stephen & Manning, Alan, 1999. "The Effects of Minimum Wages on Employment: Theory and Evidence from Britain," Journal of Labor Economics, University of Chicago Press, vol. 17(1), pages 1-22, January.
    12. David Metcalf, 1999. "The British National Minimum Wage," CEP Discussion Papers dp0419, Centre for Economic Performance, LSE.
    13. 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 C84-C86, 03.
    14. Ashenfelter, Orley & Smith, Robert S, 1979. "Compliance with the Minimum Wage Law," Journal of Political Economy, University of Chicago Press, vol. 87(2), pages 333-50, April.
    15. David Card, 1992. "Using Regional Variation in Wages to Measure the Effects of the Federal Minimum Wage," Working Papers 680, Princeton University, Department of Economics, Industrial Relations Section..
    16. repec:fth:prinin:300 is not listed on IDEAS
    17. Brown, W., 2005. "The Low Pay Commission After Eight Years," Cambridge Working Papers in Economics 0544, Faculty of Economics, University of Cambridge.
    18. Brown, W., 2002. "The Operation of the Low Pay Commission," Cambridge Working Papers in Economics 0223, Faculty of Economics, University of Cambridge.
    19. Stephen Machin & Joan Wilson, 2004. "Minimum wages in a low-wage labour market: Care homes in the UK," Economic Journal, Royal Economic Society, vol. 114(494), pages C102-C109, 03.
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    Cited by:

    1. Paulina Broniatowska & Aleksandra Majchrowska & Zbigniew Żółkiewski, 2015. "Does minimum wage reduce youth employment on regional labour markets in Poland?," Lodz Economics Working Papers 1/2015, University of Lodz, Faculty of Economics and Sociology.
    2. Bozena Kaderabkova & Emilie Jasova, 2016. "Character And Intensity Of The Minimum Wage Influence On Unemployment In The Czech Republic And Slovakia," International Journal of Economic Sciences, International Institute of Social and Economic Sciences, vol. 5(1), pages 37-49, March.
    3. Alan Manning, 2013. "Minimum Wages: A View from the UK," Perspektiven der Wirtschaftspolitik, Verein für Socialpolitik, vol. 14(1-2), pages 57-66, 02.
    4. Gautié, Jérôme, 2015. "D'un siècle à l'autre, salaire minimum, science économique et débat public aux États-Unis, en France et au Royaume-Uni (1890-2015)," CEPREMAP Working Papers (Docweb) 1518, CEPREMAP.

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