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Where the minimum wage bites hard: the introduction of the UK national minimum wage to a low wage sector

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Listed:
  • Machin, Stephen
  • Manning, Alan
  • Rahman, Lupin

Abstract

Between 1993 and April 1999 there was no minimum wage in the United Kingdom (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 employment. Our results suggest that the minimum wage raised the wages of a large number of care home 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 & Manning, Alan & Rahman, Lupin, 2003. "Where the minimum wage bites hard: the introduction of the UK national minimum wage to a low wage sector," LSE Research Online Documents on Economics 2452, London School of Economics and Political Science, LSE Library.
  • Handle: RePEc:ehl:lserod:2452
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    References listed on IDEAS

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    1. Richard Dickens & Alan Manning, 1995. "After Wages Councils," New Economy, Institute for Public Policy Research, vol. 2(4), pages 223-227, December.
    2. Stephen Machin & Alan Manning, 2002. "The Structure of Wages in What Should be a Competitive Labour Market," CEP Discussion Papers dp0532, Centre for Economic Performance, LSE.
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    6. Machin, Stephen & Manning, Alan & Rahman, Lupin, 2002. "Where the minimum wage bites hard: the introduction of the UK national minimum wage to a low wage sector," LSE Research Online Documents on Economics 20070, London School of Economics and Political Science, LSE Library.
    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.
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    19. 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, November.
    20. Stephen Machin & Alan Manning & S Woodland, 1993. "Are Workers Paid their Marginal Product? Evidence from a Low Wage Labour Market," CEP Discussion Papers dp0158, Centre for Economic Performance, LSE.
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    More about this item

    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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