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The Employment Effects of the October 2003 Increase in the National Minimum Wage

Author

Listed:
  • Richard Dickens

    (Queen Mary, University of London)

  • Mirko Draca

    (Centre for Economic Performance, London School of Economics)

Abstract

Initial research on the employment impact of the introduction of the National Minimum Wage has shown no evidence of any significant employment loss (Stewart, 2002, 2003, 2004). Against this background the NMW was raised substantially in October 2003 from £4.20 to £4.50 and again in October 2004 to £4.85. These are quite large increases in the NMW and they have been predicted to raise the wages for a substantial proportion of employees in the UK. Some concerns have been raised in the business community about the size of these increases, with some large employers claiming that for the first time the NMW will affect their pay structures. In this report we examine the impact of the October 2003 increase in the NMW on employment. We use a methodology first proposed by Linneman (1982) and used more recently by Stewart (2003, 2004) to examine the introduction of the minimum wage. This essentially examines individual transitions out of employment, comparing a group of workers directly affected by the NMW with a similar but unaffected group.

Suggested Citation

  • Richard Dickens & Mirko Draca, 2005. "The Employment Effects of the October 2003 Increase in the National Minimum Wage," Working Papers 532, Queen Mary University of London, School of Economics and Finance.
  • Handle: RePEc:qmw:qmwecw:532
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    References listed on IDEAS

    as
    1. Machin, Stephen & Manning, Alan & Rahman, Lupin, 2002. "Where the minimum wage bites hard: the introduction of the UK national minimum wage to a low wage sector," LSE Research Online Documents on Economics 20070, London School of Economics and Political Science, LSE Library.
    2. Mark B. Stewart, 2004. "The Impact of the Introduction of the U.K. Minimum Wage on the Employment Probabilities of Low-Wage Workers," Journal of the European Economic Association, MIT Press, vol. 2(1), pages 67-97, March.
    3. Kramarz, Francis & Philippon, Thomas, 2001. "The impact of differential payroll tax subsidies on minimum wage employment," Journal of Public Economics, Elsevier, vol. 82(1), pages 115-146, October.
    4. Richard Dickens & Alan Manning, 2004. "Has the national minimum wage reduced UK wage inequality?," Journal of the Royal Statistical Society Series A, Royal Statistical Society, vol. 167(4), pages 613-626, November.
    5. Linneman, Peter, 1982. "The Economic Impacts of Minimum Wage Laws: A New Look at an Old Question," Journal of Political Economy, University of Chicago Press, vol. 90(3), pages 443-469, June.
    6. repec:bla:obuest:v:64:y:2002:i:s1:p:583-605 is not listed on IDEAS
    7. repec:bla:obuest:v:64:y:2002:i:0:p:583-605 is not listed on IDEAS
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Fidrmuc, Jan & Tena, J. D., 2018. "UK national minimum wage and labor market outcomes of young workers," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 12, pages 1-28.
    2. Brewer, Mike & Crossley, Thomas F. & Zilio, Federico, 2019. "What Do We Really Know about the Employment Effects of the UK's National Minimum Wage?," IZA Discussion Papers 12369, Institute of Labor Economics (IZA).
    3. Cabras, Stefano & Fidrmuc, Jan & de Dios Tena Horrillo, Juan, 2017. "Minimum wage and employment: Escaping the parametric straitjacket," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 11, pages 1-20.
    4. Mark B. Stewart & Joanna K. Swaffield, 2008. "The Other Margin: Do Minimum Wages Cause Working Hours Adjustments for Low‐Wage Workers?," Economica, London School of Economics and Political Science, vol. 75(297), pages 148-167, February.
    5. M. K. Jones & R. J. Jones & P. L. Latreille & P. D. Murphy & P. J. Sloane, 2013. "A regional analysis of flows into and out of the UK national minimum wage," Applied Economics, Taylor & Francis Journals, vol. 45(21), pages 3074-3087, July.
    6. Fidrmuc, Jan, 2012. "National minimum wage and labour market outcomes of young workers," DES - Working Papers. Statistics and Econometrics. WS ws121209, Universidad Carlos III de Madrid. Departamento de Estadística.
    7. Jan Fidrmuc & Juan D. Tena, 2019. "Minimum Wage and Young Workers: UK Evidence," ifo DICE Report, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 16(04), pages 19-22, January.
    8. repec:ces:ifodic:v:16:y:2019:i:4:p:50000000004803 is not listed on IDEAS
    9. Metcalf, David, 2007. "Why has the British national minimum wage had little or no impact on employment?," LSE Research Online Documents on Economics 19742, London School of Economics and Political Science, LSE Library.
    10. Yang, Qiming & Zhang, Xiaobo & Zhu, Wu, 2016. "Have Chinese firms become smaller? If so, why?:," IFPRI discussion papers 1558, International Food Policy Research Institute (IFPRI).
    11. Jan Fidrmuc & J. D. Tena, 2013. "National Minimum Wage and Employment of Young Workers in the UK," CESifo Working Paper Series 4286, CESifo.
    12. repec:ilo:ilowps:485325 is not listed on IDEAS
    13. Herr, Hansjörg. & Ruoff, Bea., 2014. "Wage dispersion : empirical developments, explanations, and reform options," ILO Working Papers 994853253402676, International Labour Organization.

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    More about this item

    Keywords

    Minimum wages; Employment transitions; Wages;
    All these keywords.

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs

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