National Minimum Wage

National Minimum Wage
68
Figure 2.22: Net Change in Stock of Firms, by Selected Low-paying Industry, UK,
2004-2010
Net change (registrations less de-registrations) as a proportion
of the stock of businesses (per cent)
3
2
1
0
-1
-2
-3
-4
-5
2004
Whole
economy
2005
2006
Low-paying
industries including
other services
2007
Year
2008
Low-paying
industries excluding
other services
2009
2010
Retail Hospitality
Source: LPC estimates based on ONS data; business demography, enterprise births, deaths and survivals 2010, annual, not seasonally
adjusted, UK, 2004-2010.
Note: From 2008 onwards these data are based on SIC 2007, before 2008 they are based on SIC 2003. Care should be taken in
comparisons between 2007 and 2008.
Research on Business Start-ups and Failures
2.129 The research on business failures has usually been conducted alongside the research on
profits. Despite minimum wage increases appearing to squeeze profits, Draca, Machin and
Van Reenen (2005 and 2011) found no evidence that this had led to an increase in the
number of business failures. In contrast, Forth, Harris, Rincon-Aznar and Robinson (2009),
using industry-level ABI data, found some weak evidence that the minimum wage had
increased the exit rates of firms but this finding was not robust to changes in specifications.
2.130 Researchers have utilised three main data sources to investigate whether the minimum
wage may have adversely affected business creation in the UK. We did not commission any
research in this area for this report but one recently published study, Draca, Machin and Van
Reenen (2011), used FAME and found some weak evidence of falls in net entry rates. Using
VAT registrations, Experian (2007), found that business creation was lower in those regions
where pay was lowest (and the bite of the minimum wage highest). Finally, using the ARD,
Galindo-Rueda and Pereira (2004) found evidence to suggest that the introduction of the
minimum wage led to business creation being slower in the lowest-paying geographical
areas. We can therefore conclude that there is some research evidence that the minimum
wage may have affected business start-ups.
3
2
1
0
-1
-2
-3
-4
-5