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Measuring compliance with minimum wages

Author

Listed:
  • Felix Ritchie

    (University of the West of England, Bristol)

  • Michail Veliziotis

    (University of the West of England, Bristol)

  • Hilary Drew

    (University of the West of England, Bristol)

  • Damian Whittard

    (University of the West of England, Bristol)

Abstract

Many countries have a statutory minimum wage for employees. There is a strong policy interest in knowing the degree of compliance with the law. Quantitative analysis is ideally suited to this, and many countries have rich datasets for employment research. However, identifying genuine underpayment of wages is not straightforward: data quality, statistical factors and processing errors can all contribute to the under- or over-estimation of the true level of compliance. The impact is exacerbated by the binary ‘yes-no’ nature of compliance. We consider the statistical measurement of non-compliance in the UK. UK minimum wages have been extensively studied, using large-scale high-quality datasets whose characteristics are well understood and whose overlapping coverage allows triangulation of results. We focus particularly on apprentices: a survey of apprentice wages was introduced in 2011, throwing further light on measurement issues, even in a purpose-built survey instrument. We identify several problems leading to under- and over-estimation of compliance rates. Some are well-known statistical or methodological issues, but others relate to the way that survey data is processed; this is rarely considered by data users. The binary nature of compliance makes such problems easier to identify and evaluate. In particular, we demonstrate the value of a very detailed knowledge of the data at crucial points in the distribution, and the importance of triangulation for understanding the reliability of estimates. While concentrating on compliance with a statutory minimum wage, the paper has some wider lessons for the understanding the characteristics of large and complex datasets. We also show how the use of quantitative data can be used to effectively target complementary qualitative data collection.

Suggested Citation

  • Felix Ritchie & Michail Veliziotis & Hilary Drew & Damian Whittard, 2016. "Measuring compliance with minimum wages," Working Papers 20161608, Department of Accounting, Economics and Finance, Bristol Business School, University of the West of England, Bristol.
  • Handle: RePEc:uwe:wpaper:20161608
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    File URL: http://www2.uwe.ac.uk/faculties/BBS/BUS/Research/General/Economics%20papers%202016/1608.pdf
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    References listed on IDEAS

    as
    1. Hiroyuki Yamada, 2012. "Non-compliance with the Minimum Wage Law when Completely New Minimum Wage Laws Are Established: The Case of South Africa," African Development Review, African Development Bank, vol. 24(1), pages 41-51.
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    Cited by:

    1. Bachmann, Ronald & Bonin, Holger & Boockmann, Bernhard & Demir, Gökay & Felder, Rahel & Isphording, Ingo & Kalweit, René & Laub, Natalie & Vonnahme, Christina & Zimpelmann, Christian, 2020. "Auswirkungen des gesetzlichen Mindestlohns auf Löhne und Arbeitszeiten: Studie im Auftrag der Mindestlohnkommission," RWI Projektberichte, RWI - Leibniz-Institut für Wirtschaftsforschung, number 222998, September.
    2. 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).
    3. Bachmann, Ronald & Bonin, Holger & Boockmann, Bernhard & Demir, Gökay & Felder, Rahel & Isphording, Ingo E. & Kalweit, René & Laub, Natalie & Vonnahme, Christina & Zimpelmann, Christian, 2020. "Auswirkungen des gesetzlichen Mindestlohns auf Löhne und Arbeitszeiten," IZA Research Reports 96, Institute of Labor Economics (IZA).
    4. Andrea Garnero, 2018. "The dog that barks doesn’t bite: coverage and compliance of sectoral minimum wages in Italy," IZA Journal of Labor Policy, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 7(1), pages 1-24, December.
    5. Dütsch Matthias & Himmelreicher Ralf & Ohlert Clemens, 2019. "Calculating Gross Hourly Wages – the (Structure of) Earnings Survey and the German Socio-Economic Panel in Comparison," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 239(2), pages 243-276, April.

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      Keywords

      minimum wage; non-compliance; measurement error; data quality;
      All these keywords.

      JEL classification:

      • C18 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Methodolical Issues: General
      • C55 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Large Data Sets: Modeling and Analysis
      • C81 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Methodology for Collecting, Estimating, and Organizing Microeconomic Data; Data Access
      • C83 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Survey Methods; Sampling Methods
      • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
      • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy

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