National Minimum Wage

Chapter 2
The Impact of the National
Minimum Wage
Introduction
2.1 We have carefully monitored the impact of the National Minimum Wage (NMW) since its
introduction in April 1999. We have done this by looking at whether the minimum wage has
had any effects on individual earnings and on pay structures and investigating how employers
have coped with these changes. In Chapter 1, we considered the macroeconomic context in
which the October 2011 upratings came into effect but it is too early to assess the impact of
those upratings.
2.2 In reviewing the impact of the NMW since its introduction, this chapter focuses mainly on
the impact of recent minimum wage upratings. The increases in October 2010 were 2.2 per
cent for those aged 21 and over, 1.9 per cent for 18-20 year olds, and 2.0 per cent for 16-17
year olds. Although we refer to increases in the minimum wages for young workers and
comment on some aspects of the impact by age, we concentrate on the impact of the adult
rate. It should be noted here that our analysis takes account of the extension of the adult rate
to cover 21 year olds from October 2010. An Apprentice Rate was also introduced at that
time. The impact on young workers and apprentices is covered in more detail in Chapter 3.
2.3 As well as investigating the impact of the minimum wage at an aggregate level, we have also
sought to identify impacts where we would be most likely to find evidence of them. We
know that specific groups of workers in certain jobs, industries and locations are more likely
to be low paid. We start by giving a brief overview of these low-paying jobs and low-paid
workers.
National Minimum Wage Jobs
2.4 We use the Annual Survey of Hours and Earnings (ASHE) as the main dataset for hourly
earnings information. This is an annual survey of 1 per cent of the workers on HM Revenue &
Customs’ Pay-As-You-Earn register. The earnings and hours information in the survey are
reported by employers from their records. The Office for National Statistics (ONS) regards it
as the best source of information on individual earnings in the UK. The data also record each
individual’s gender, age, industry, occupation, home postcode, work postcode and size of
firm. Further details on this dataset are outlined in Appendix 4. The latest available ASHE data
are from April 2011, when the adult minimum wage was £5.93 an hour (2.2 per cent higher
than in the previous year). We use hourly pay excluding overtime as the basic measure of
earnings. It should also be noted that the earnings distribution in April 2011 may already, to
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