National Minimum Wage

Chapter 2: The Impact of the National Minimum Wage
2.112 Two studies have used ARD plant-level data. Galindo-Rueda and Pereira (2004) found some
evidence of a positive impact from the introduction of the minimum wage on labour
productivity, particularly in the service industries, but their results were sensitive to the
econometric specification employed. In contrast, Forth, Harris, Rincon-Aznar and Robinson
(2009) found a negative association between the NMW and productivity when they extended
the data to cover up to 2005. But their results were not robust.
2.113 Two studies have also used ABI data to investigate the effects on productivity of the
minimum wage. Using data up to 2000, Forth and O’Mahony (2003) found some evidence
that productivity may have increased in textiles, security and hairdressing but they concluded
that they could find no systematic evidence that the introduction of the minimum wage had
boosted labour productivity. Building on this industry-level analysis and extending the data
period up to 2006, Forth, Harris, Rincon-Aznar and Robinson (2009) again found no robust
association between the minimum wage and productivity.
2.114 Machin, Manning and Rahman (2003) in their study of care homes found a positive but
statistically insignificant relationship between the minimum wage and productivity. No such
relationship was found by Georgiadis (2006) in his follow-up study.
2.115 Another way that the minimum wage could have affected productivity is through investment
in training. Two studies have looked at training. Using the British Household Panel Survey,
Arulampalam, Booth and Bryan (2004) found statistically significant effects of the introduction
of the minimum wage on both the incidence and intensity (number of days) of training.
However, using the LFS, Dickerson (2007) found no significant effects, positive or negative,
on job-related training of the introduction and first two upratings of the minimum wage.
In summary, UK research has generally found some weak evidence of a small positive but
not statistically significant association between the minimum wage and labour productivity.
Prices
2.116 Firms affected by increases in the minimum wage might try and pass their costs on to
customers in the form of higher prices. There are three main sources of detailed information
on consumer and business-to-business prices. The CPI and RPI collate information on prices
to consumers, while the Services Producer Price Index (SPPI) collects information on
business-to-business transactions. Since the introduction of the minimum wage in April 1999,
CPI and SPPI have both increased by just over 31 per cent, while RPI has risen faster at 44
per cent. Table 2.11 suggests that since the introduction of the minimum wage the prices of
selected goods and services (produced by firms in low-paying sectors with a high proportion
of minimum wage workers) may have risen faster than prices in general.
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