National Minimum Wage

Appendix 2
Low Pay Commission Research
Overview
1 The National Minimum Wage (NMW) was introduced in the UK in April 1999 and since then
numerous researchers, funded independently or by the Commission, have investigated its
impact. The general consensus of these studies is that the minimum wage has raised the
earnings of the low paid without significantly affecting employment or generating wage
inflation. Instead of cutting employment, research evidence indicates that firms have
attempted to cope with increases in the minimum wage by changing pay structures and
reducing non-wage costs; reducing hours; raising prices; or accepting lower profits. But it
should be noted that much of this research was conducted when the economy was
performing strongly, although the research commissioned for our 2011 Report, taking
account of some of the recent economic downturn, drew similar conclusions. However,
that research also found some tentative evidence that the employment of young people may
have been affected by the minimum wage during the recession.
2 For this report, we again commissioned research that focused on the impact of the minimum
wage in recession and the impact on young people. We start this section by discussing the
impact of the minimum wage on the earnings distribution and pay differentials, before
considering wider issues of employment and hours. We also investigated whether these
effects differed by size of firm. Our focus then turns to young people to again consider the
relationship between age, wage and productivity; the impact on employment and schooling;
and the reasons why wage growth among young people had been slower than for older
workers during the recession. We then consider the impact of the introduction of the
Apprentice Rate in October 2010. Our research programme was completed by investigating
non-compliance, and the impact of the potential abolition of the Agricultural Wages Board for
England and Wales (AWBEW).
3 Butcher, Dickens and Manning (2012) built on their previous analysis of the impact of the
minimum wage on the wage distribution, which had found clear evidence that inequality had
been falling at the bottom of the wage distribution since the introduction of the minimum
wage. For the UK as a whole, over the period between 1998 and 2010, the researchers again
found modest spill-over effects. The minimum wage directly affected up to the 6th percentile,
at which the spill-over effect was largest, raising wages by about 7 per cent more than in the
absence of the minimum wage. This effect stretched up the pay distribution (wages were
raised by about 4 per cent at the 10th percentile and still over 1 per cent at around the 20th percentile). The effect was larger for women than men. Disaggregating these affects by
geography, they found that areas most affected by the minimum wage had even larger
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