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Has the national minimum wage reduced UK wage inequality?

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  • Dickens, Richard
  • Manning, Alan

Abstract

This paper investigates the impact on the wage distribution of the introduction, in April 1999, of the National Minimum Wage in the UK. Because of the structure of UK earnings statistics, it is not straightforward to investigate this and a number of different methods for adjusting the published statistics are discussed. The main conclusions are that the NMW does have a detectable effect on the wage distribution and that compliance with the NMW is widespread but the impact is limited because the NMW has been set at a level such that only 6-7% of workers are directly affected and the NMW has had virtually no impact on the pay of workers not directly affected. Furthermore, virtually all the changes occurred within two months of the introduction in April 1999 and its impact declined over time from April 1999 to May 2001 as the minimum wage was not up-rated in line with the increase in average earnings.

Suggested Citation

  • Dickens, Richard & Manning, Alan, 2002. "Has the national minimum wage reduced UK wage inequality?," LSE Research Online Documents on Economics 20079, London School of Economics and Political Science, LSE Library.
  • Handle: RePEc:ehl:lserod:20079
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    References listed on IDEAS

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    1. DiNardo, John & Fortin, Nicole M & Lemieux, Thomas, 1996. "Labor Market Institutions and the Distribution of Wages, 1973-1992: A Semiparametric Approach," Econometrica, Econometric Society, vol. 64(5), pages 1001-1044, September.
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    3. 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 633-652, Supplemen.
    4. Teulings, Coen N, 2000. "Aggregation Bias in Elasticities of Substitution and the Minimum Wage Paradox," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 41(2), pages 359-398, May.
    5. Sue Fernie & Helen Gray, 2002. "Its a Family Affair: the Effect of Union Recognition and Human Resource Management on the Provision of Equal Opportunities in the UK," CEP Discussion Papers dp0525, Centre for Economic Performance, LSE.
    6. Skinner, Chris, et al, 2002. "The Measurement of Low Pay in the UK Labour Force Survey," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 64(0), pages 653-676, Supplemen.
    7. David S. Lee, 1999. "Wage Inequality in the United States During the 1980s: Rising Dispersion or Falling Minimum Wage?," The Quarterly Journal of Economics, Oxford University Press, vol. 114(3), pages 977-1023.
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    More about this item

    Keywords

    minimum wage; wage inequality;

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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