National Minimum Wage

Chapter 2: The Impact of the National Minimum Wage
2.90 We did not commission any new research that used time series data but two recent studies
have taken this approach. Dolton and Rosazza Bondibene (2011) used data across 33
Organisation for Economic Co-operation and Development and European countries over the
period from 1976-2008 and found that minimum wages negatively affected employment.
This was in line with the findings of similar international studies. However, they found this
significantly negative effect largely disappeared when weighting by the size of the labour
market and using alternative specifications. There was little difference in their results across
the economic cycle for adults, although they confirmed previous findings that the impact of
the minimum wage was more detrimental for young people in the presence of an economic
downturn. Dickens and Dolton (2011) used a time series of industries to explore the impact
of the sector-specific minimum wages set by the Wages Councils in the 1980s and 1990s. In
contrast to the international evidence, their results suggested that these minimum wages
may even have had a positive impact on employment. They found no adverse effect during
the 1980s and 1990s recessions. They suggested that job turnover may have reduced in
those recessions and that this had helped maintain employment in industries generally
characterised by high staff turnover. In earlier work also looking at the Wages Councils,
Dickens, Machin and Manning (1999) had reached similar conclusions. However, Dickens and
Dolton (2011) did find some evidence of a significant negative effect on the level of hours
although this finding disappeared when considering changes in hours. They concluded that
any adverse recessionary effects on employment or hours were limited.
2.91 We commissioned three research projects for this report to investigate the impact of the
minimum wage on employment and hours. That research took two approaches, looking at
either individual data or spatial analysis. In general, previous studies using these approaches
have found little adverse impact on employment, although, several using the individual data
approach have found some adverse impact on hours.
2.92 Dickens, Riley and Wilkinson (2012) investigated effects on employment and hours using
both approaches. First, they used individual data and second, they took advantage of the
geographical variation in wages. Using the individual data they also looked at how these
minimum wage effects varied by size of firm. In contrast to previous research that the NMW
had raised the earnings of low-paid workers without affecting employment opportunities,
they found some evidence, using the New Earnings Survey and in some econometric
specifications, that the introduction of the minimum wage may have had a small adverse
impact on the employment opportunities of women working part-time. This effect was
strongest when the minimum wage was introduced and during the recent recession.
In comparison to other workers, low-paid workers were more likely to work in small firms.
Any detrimental employment effects among low-paid female part-time employees tended to
be more significant on average in large firms.
2.93 However, in line with previous research, they found no impact for many other low-paid
workers and this finding varied little over the business cycle. They were unable to find any
evidence to suggest that the minimum wage had affected average hours in general but there
was some evidence to suggest that the minimum wage may have reduced hours by around 2
hours per week for female full-time workers during the recession. Size of firm did not appear
to be a factor with regard to hours.
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