National Minimum Wage

National Minimum Wage
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wages prior to the introduction of the minimum wage experienced the greatest falls in
inequality over the period from 1998 to 2010. They concluded that the minimum wage had
led to higher wage growth for low-paid workers and that this was particularly large upon its
introduction. Evidence that the minimum wage had squeezed differentials at the bottom of
the earnings distribution was also found by Dolton, Rosazza Bondibene and Wadsworth (2010).
2.61 This supports the findings from earlier work, such as Swaffield (2009) and Dolton, Lin,
Makepeace and Tremayne (2011). Both these studies also noted that lower pay rises had
been awarded to low-paid workers when minimum wage increases were lower than average
earnings. Dickens, Riley and Wilkinson (2012) also found evidence that supports IDS in its
view that wage differentials between minimum wage workers and those paid just above the
NMW had been restored somewhat during and since the recession.
2.62 Butcher, Dickens and Manning (2009) had found clear evidence that inequality had been
falling at the bottom of the wage distribution since the introduction of the minimum wage.
Building on this analysis of the impact of the minimum wage on the wage distribution,
Butcher, Dickens and Manning (2012) again found modest spill-over effects for the UK as a
whole over the period between 1998 and 2010. 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 spill-over effects. In contrast to the comprehensive study by Stewart (2009) and much
previous research, this suggested that spill-over effects may be larger than previously
thought.
2.63 Dolton, Lin, Makepeace and Tremayne (2011) analysed pay data from 1977-2009. They found
a clear positive effect of price inflation on wage settlements; and a negative effect of
unemployment on wage settlements. In line with previous studies, they also found slightly
higher increases in wage growth over the whole period since the National Minimum Wage
was introduced. In contrast to those findings, and extending the pay data to 2011, Dolton,
Makepeace and Tremayne (2012) could find no association between the minimum wage and
earnings growth or pay settlements, which they concluded was consistent with previous
research findings of limited spill-over effects of the minimum wage on earnings higher up the
wage distribution.
Views on Earnings and Pay
2.64 CBI argued that increases in the minimum wage in
recent years have acted as inflationary pressure at the
bottom of pay structures. It said the minimum wage
had grown faster than average private sector earnings
and it was concerned at the risk of a rise in the bite of
the minimum wage in some of the lower-paying
sectors if earnings growth in these sectors was lower
than growth across the whole economy. In terms of
“Every rise in the NMW
erodes the gap between NMW
employees and those on the
next level up.”
Cinema Exhibitors’ Association
evidence