IDEAS home Printed from
   My bibliography  Save this paper

The Rate Of Substitution Between Low Pay Workers and The National Minimum Wage


  • Lanot, Gauthier

    () (Department of Economics, Umeå School of Business and Economics)

  • Sousounis , Panos

    () (Keele Management School, Economics)


We study the effect of the National Minimum Wage (NMW) on the workforce composition, in terms of distinct age groups with similar qualifcations, within the low paying sectors of the economy. Our interest is in the degree of substitutability between labour inputs (young and old employees) in the production process. We find evidence that both the introduction and regu- lar uprating of the NMW have a signifcant effect on determining observed changes in average wages for age groups older than 16-17 years of age. However, our results show that the effects of the NMW and its uprating on the sectoral cost of labour are rather weak and we conclude that, if any, the influence of the NMW has to be small and limited to the very young (16-17 year olds) or the 18-20 year olds. We estimate the elasticity of substitution, between 18-20 year olds and old workers, to be around 0.2-0.5, which would imply signifcant complementarity (or at least argue against perfect substitution) between younger and old employees.

Suggested Citation

  • Lanot, Gauthier & Sousounis , Panos, 2014. "The Rate Of Substitution Between Low Pay Workers and The National Minimum Wage," Umeå Economic Studies 877, Umeå University, Department of Economics.
  • Handle: RePEc:hhs:umnees:0877

    Download full text from publisher

    File URL:
    Download Restriction: no

    More about this item


    labour substitution; minimum wage;

    JEL classification:

    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

    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:hhs:umnees:0877. 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: (David Skog). 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.

    We have no references for this item. You can help adding them by using 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.