National Minimum Wage

National Minimum Wage
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average difference between the NMW and wages being paid had now dropped to ten pence
in some sectors, and that the differential had become so small that upratings in the minimum
wage had effectively become the going rate for wage increases.
Summary on Earnings and Pay
2.70 It is clear from the evidence we have presented that the minimum wage has had a significant
impact on the distribution of earnings; the gender pay gap; pay structures; the timing of pay
reviews; and wage and non-wage labour costs. It also appears that its effects have continued
to increase, particularly among low-paying sectors and small firms. We now go on to
investigate how firms have coped with the increase in labour costs.
Impact on the Labour Market
2.71 We have demonstrated that the minimum wage has affected earnings. Competitive market
economic theories would suggest that a minimum wage in these circumstances would lead
to a reduction in employment. This reduction in employment could be achieved through the
intensive margin (reducing the number of hours worked) or through the extensive margin
(reducing the number of workers). Other economic theories, such as those that consider
monopsonistic (or imperfect) competition and efficiency wage theories, suggest more
ambiguous effects in that an increase in the minimum wage within a certain range might lead
to a rise in employment. A minimum wage set too low will have no effect and one set too
high will lead to job reductions, as suggested by competitive market theories. The issue of
the impact of the minimum wage on employment, therefore becomes an empirical one.
2.72 Indeed, the focus of much of the previous research and analysis carried out on the UK
minimum wage has been its impact on employment. Various methods can be used to
investigate this issue. We start by considering time series analysis of aggregate employment
and hours, before looking in more detail at employment in the low-paying sectors and
employment and unemployment among low-paid workers. We then consider more
econometric analysis and summarise the research findings that have used individual data to
estimate the impact of the minimum wage, before considering research that has made use
of pay differences and the variation in minimum wage bite by geography.
Employment and Employee Jobs
2.73 Despite the deepest recession since the 1930s, aggregate employment (whether measured
by the number of jobs or the number of workers) and total hours worked have grown since
the introduction of the minimum wage in April 1999. Official data on employment are
available from two main sources: the LFS, which surveys individuals; and the ONS workforce
jobs series (WFJ), which surveys businesses. The LFS estimates employment by counting
the number of people in employment while the WFJ series counts the number of jobs in the
economy. These counts differ as a person can have more than one job. Between March 1999
(before the introduction of the minimum wage in April 1999) and September 2011, the LFS
measure of aggregate employment increased by over 2 million workers from 27.04 million to
29.07 million. Over the same period, Table 2.7 shows that the number of workforce jobs