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What Do We Really Know about the Employment Effects of the UK's National Minimum Wage?

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  • Brewer, Mike

    (CEP, London School of Economics)

  • Crossley, Thomas F.

    (University of Essex)

  • Zilio, Federico

    (University of Melbourne)

Abstract

A substantial body of research on the UK's National Minimum Wage (NMW) has concluded that the the NMW has not had a detrimental effect on employment. This research has directly influenced, through the Low Pay Commission, the conduct of policy, including the subsequent introduction of the National Living Wage (NLW). We revisit this literature and offer a reassessment, motivated by two concerns. First, much of this literature employs difference-in-difference designs, even though there are significant challenges in conducting appropriate inference in such designs, and they can have very low power when inference is conducted appropriately. Second, the literature has focused on the binary outcome of statistical rejection of the null hypothesis, without attention to the range of (positive or negative) impacts on employment that are consistent with the data. In our re-analysis of the data, we conduct inference using recent suggestions for best practice and consider what magnitude of employment effects the data can and cannot rule out. We find that the data are consistent with both large negative and small positive impacts of the UK National Minimum Wage on employment. We conclude that the existing data, combined with difference-in-difference designs, in fact offered very little guidance to policy makers.

Suggested Citation

  • Brewer, Mike & Crossley, Thomas F. & Zilio, Federico, 2019. "What Do We Really Know about the Employment Effects of the UK's National Minimum Wage?," IZA Discussion Papers 12369, Institute of Labor Economics (IZA).
  • Handle: RePEc:iza:izadps:dp12369
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    References listed on IDEAS

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    1. Jakub Grossmann, 2021. "The Effects of Minimum Wage Increases in the Czech Republic," CERGE-EI Working Papers wp679, The Center for Economic Research and Graduate Education - Economics Institute, Prague.
    2. Jakub Grossmann, 2021. "The Effects of Minimum Wage Increases in the Czech Republic," Working Papers 2021/2, Czech National Bank.
    3. Duanmu, Jing-Lin & Norbäck, Pehr-Johan & Lu, Jane Wenzhen & Clegg, Jeremy, 2022. "Contraction under minimum wages? Operational and financial advantages of multinational subsidiaries in China," International Business Review, Elsevier, vol. 31(2).
    4. Jonathan Cribb & Giulia Giupponi & Robert Joyce & Attila Lindner & Tom Waters & Thomas Wernham & Xiaowei Xu, 2021. "The distributional and employment impacts of nationwide Minimum Wage changes," IFS Working Papers W21/48, Institute for Fiscal Studies.
    5. Koch, Andreas & Kirchmann, Andrea & Reiner, Marcel & Scheu, Tobias & Zühlke, Anne & Bonin, Holger, 2020. "Verhaltensmuster von Betrieben und Beschäftigten im Kontext des gesetzlichen Mindestlohns," IZA Research Reports 97, Institute of Labor Economics (IZA).

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    More about this item

    Keywords

    power; difference-in-difference; minimum wage; minimum detectable effects;
    All these keywords.

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C18 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Methodolical Issues: General
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy

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