Low Pay Commission Research Reports
Overview
1 For the 2007 Report, we commissioned eleven research projects that have looked at various aspects of the impact of the National Minimum Wage. This appendix provides an overview of the main findings. For each of the studies, Table A2.1 details the focus of the study, the methodology used and summarises the key results. The full research reports are available on the Low Pay Commission website at www.lowpay.gov.uk.
2 As the minimum wage has risen faster than the increase in average earnings in recent years, it is perhaps not surprising that research using the most recent data has found the minimum wage exerting a more pervasive influence on the labour market. For this report, the commissioned research has looked at the impact on pay structures, employment, hours, profits, business start-ups, employer-provided training, prices and consumption patterns. We have also looked at the length of time that workers stay in low-paid (minimum wage) employment. After hearing much anecdotal evidence about the impact of migrant workers, particularly from central and eastern Europe, on local labour markets, we commissioned two reports: one was an econometric study looking at the impact of migrant workers on wages in the economy as a whole; the other was a qualitative study of migrant workers in a local economy. Research on enforcement has also been carried out.
3 Incomes Data Services (IDS, 2006b) looked at the impact of the 2005 upratings of the minimum wage on the low-paying sectors. It concluded that the steady rise in the minimum wage was affecting more employers than previously, both directly, as more employees were being paid at the minimum wage, and indirectly, as it exerted a growing influence on pay setting and pay structures. However, the nursery sector was the only low-paying sector that reported reductions in staffing as a consequence of the 2005 increase in the minimum wage. In the retail sector, IDS found that over half of the retail firms it surveyed now paid a minimum rate at the level of the adult minimum wage, although most large multiple retail chains continue to maintain their lowest rate of pay above the minimum wage. It also noted that a growing number of pubs and restaurants were using the lower rates for under 22 year olds. In retail and hospitality, the report stated that recent increases in the minimum wage had contributed to decisions to reduce differentials between location-based pay bands and, in some cases, to reduce the number of pay bands.
4 Denvir and Loukas (2006) also looked at the impact of the minimum wage on pay differentials and changes in the workplace in three low-paying sectors. Using a telephone survey, the researchers found that the main impacts were on labour costs and profits, with smaller effects on prices, employment and non-labour costs. Over 40 per cent of the surveyed firms had increased pay rates as a result of the minimum wage increase in 2005, with more firms operating with squeezed differentials than maintaining them. Nearly all of the firms that increased pay rates identified the minimum wage as the main driver that had led to changes to the pay structure. Just over a fifth of the surveyed firms reported making changes to staffing levels and hours, particularly in the following respects: changes in recruitment and retention practice; changes to the composition of the workforce (e.g. part-time/full-time mix) and recruitment of employees with different skills, of a different age or more migrant workers.
5 In more in-depth interviews, the researchers found that most firms affected by the minimum wage had focused on the internal re-organisation of rewards and working practices, as they had felt unable to adjust prices or business practices. They concluded that some firms had changed their pay structures in response to changes in the minimum wage by removing some layers; making changes to pay rates (such as reducing special or discretionary payments); negotiating no-premium contracts with new workers; and/or reducing staffing levels (through non-replacement of staff or reductions in both operating and working hours). The study found no evidence of a direct relationship between decisions to maintain or compress differentials, and changes to pay, staffing, training or work organisation.
6 Using a more econometric approach, Experian (2007) investigated the impact of sectoral and regional effects of the minimum wage on employment, profits and business start-ups. It confirmed that the minimum wage had impacted on regional and sectoral pay between 1999 and 2005. Experian looked at the relative performance of the low-paying sectors within regions and countries of the UK but, due to data limitations, it confined most of its analyses to hospitality and retail. Looking at the period from 1995 to 2004 as a whole, it found some evidence that the minimum wage had had a statistically significant but small negative regional employment impact in the hospitality sector. However, for retail the results were only statistically significant if London and the West Midlands were excluded. In other words, Experian found that increases in the minimum wage reduced employment growth in relatively low-paying regions while increasing employment growth in relatively high-paying regions, particularly in hospitality. Looking at individual years in isolation, the study found no significant effects on employment in retail or hospitality from the introduction of the minimum wage. However, it did find a statistically significant negative impact on regional employment for the hospitality industry as a result of the large minimum wage upratings in 2001 and 2003. No such effects were found for retail.
7 Experian found no significant impact on profits in retail or hospitality. It also investigated the impact of the minimum wage on company formation and found evidence of a statistically significant negative impact on business start-ups for the distribution industry, which consists of the wholesale, retail and motor vehicle sectors. It also found weak evidence of such an impact for the hospitality sector. Experian concluded that its results, particularly on employment, contrasted with previous findings in the literature but that might be because it was the first study to focus on effects on industries within regions and to look at the introduction and subsequent upratings of the minimum wage in an integrated framework. Further, the negative employment effects in hospitality were small in magnitude.
8 As noted above, a common theme that developed on our regional visits for the 2005 Report was the impact on the labour market of the recent increase in migrant workers. Dustmann, Frattini and Preston (2007) studied the impact of migrants on wages in the British labour market. They found that new migrant workers in the UK tended on average to be better educated and younger than the overall British workforce. The study noted that some native workers would be adversely affected by migration while others would benefit. It found that the gains made by those that benefited were greater than the losses made by those that did not. In other words, immigration to the UK had increased average wages at the aggregate level. The authors found some evidence that wages at the bottom end of the earnings distribution had been negatively affected by the increasing number of migrant workers. European Union expansion in 2004 and the arrival of workers from the eight Accession Countries (A8) had increased the number of workers competing for jobs at the lower end of the wage distribution, thus adding to the downward pressure on wages in low-paid jobs. The researchers believed that these effects might reduce over time as better educated migrants stopped competing for low wage jobs and moved into occupations more closely matching their skills and education. The study concluded that 'the minimum wage performs an important role to secure wages of workers who would otherwise lose out from immigration'. In other words, without the minimum wage, the downward pressure on wages at the bottom end of the earnings distribution would have been even greater.
9 The research we commissioned by French and Möhrke (2006) also focused on migrant labour. This qualitative research looked at the impact of new migrants on the North Staffordshire labour market. The findings highlighted the fact that, although migrant workers worked across a wide range of sectors, the vast majority were employed in low-skilled, comparatively low-paid employment, with most earning at or slightly above the minimum wage. The food processing, manufacturing and distribution sectors made greatest use of migrant labour. Employers' experiences of using migrant workers had been positive in terms of productivity, flexibility and retention, and these factors had resulted in substantial savings in unit labour costs, without the need to cut pay rates.
10 French and Möhrke found evidence of exploitation of migrant workers, in particular those recruited through international employment agencies. Albeit based on a small number of case studies, the researchers found that non-payment and under-payment of workers by agencies was a recurring theme, along with evidence of a range of problems relating to the provision of accommodation and other services. However, they found that A8 workers were increasingly inclined to move away from contracts with international agencies, towards direct recruitment or local agencies. The study highlighted that many migrant workers had little, if any, knowledge of UK employment rights or how to access them. The outcomes strengthened our view, as noted in Chapter 6, that enforcement should be targeted on sectors where there is a concentration of migrant workers.
11 Following on this theme of compliance and enforcement, Croucher and White (2007) were commissioned to conduct an evaluation of the Department of Trade and Industry/HM Revenue and Customs (DTI/HMRC) targeted enforcement pilot in the hairdressing sector. The researchers found mixed results as to the effectiveness of the campaign. Although they found relatively high awareness of the fact that there was a minimum wage among employers and workers, understanding of the actual rate and in particular of the youth rates, was considerably lower, as was the understanding of how the minimum wage applied to apprentices. Interestingly, but worryingly, this research also highlighted limitations in the understanding of the employment rights of migrant workers, with some employers apparently believing that workers from outside the EU were not entitled to the minimum wage.
12 Two projects investigated movement in and out of minimum wage employment. Sloane, Murphy, Latreille, Jones and Jones (2007) found that minimum wage jobs were of relatively short duration for the majority of those affected. Using a different data set, Bryan and Taylor (2006), also found a high degree of mobility out of minimum wage employment, but they found that much of this mobility was to jobs with relatively low pay, often with subsequent return to minimum wage jobs.
13 Building on their work for the 2005 Report (Sloane et al, 2004), Sloane, Murphy, Latreille, Jones and Jones (2007) used the New Earnings Survey Panel Data (NESPD) to look at the persistence of minimum wage employment. They found evidence that employment in minimum wage jobs for the majority of affected workers was of short duration. This finding, which agrees with results found in the United States, runs counter to results from previous UK studies that have looked at low pay dynamics from slightly higher up the earnings distribution. However, the authors also found tentative evidence to suggest that a small number of workers experienced much longer spells of work at or below the minimum wage.
14 While they found that young workers were more likely to be in minimum wage jobs than older workers, they also found that older workers were less likely to leave a minimum wage job and thus were more likely to experience much longer spells in minimum wage employment. Using inflow and outflow data from the Labour Force Survey (LFS), they also found that more recent minimum wage entrants had a reduced probability of moving on, so that the average duration of spells on the minimum wage was increasing over time. They concluded that the minimum wage 'has not had a particularly detrimental effect on labour market outcomes', instead it 'has served to underpin the wages of many low-paid workers'.
15 Bryan and Taylor (2006) used data from the British Household Panel Survey (BHPS) to look at the persistence of minimum wage employment between 1999 and 2004. They found that about 83 per cent of employees were continuously paid above the minimum wage; 12 per cent of employees were 'occasionally' (in one or two of the years) on the minimum wage; and just 5 per cent were 'persistently' (for three or more of the years) on the minimum wage. Those regarded as 'persistent' minimum wage recipients were more likely to be older, female, married, have no qualifications, be in part-time work, not in a union and working in the private sector. Those regarded as 'occasional' minimum wage recipients were more likely to be younger (and as such less likely to be married), in temporary employment and have lower job tenure. However, they were more likely to be older, female, have fewer qualifications and be in part-time work than those who had never received the minimum wage.
16 The study found that 'occasional' recipients of the minimum wage were more likely to leave for higher paid employment than 'persistent' recipients, who were more likely to move to earnings just above this level. It also found that employer changes and promotions were associated with movements out of minimum wage jobs. 'Persistent' minimum wage recipients were more likely to work in small firms, often in the hospitality and retail sectors, and tended to have low skills. 'Occasional' recipients were also concentrated in these areas but to a lesser degree.
17 They noted that more workers experienced the minimum wage at some point in their careers than implied by the cross sectional estimates. The researchers concluded that around 40 per cent of the minimum wage recipients in their survey combined minimum wage jobs with spells out of work over the six year period covering 1999 to 2004.
18 Wadsworth (2007) investigated the consumption patterns of minimum wage households and the impact of the minimum wage on the prices of goods and services that are associated with minimum wage employment. Using the Family Expenditure Survey and its successor the Expenditure and Food Survey, he found that there was little evidence of differential consumption patterns among households with an adult minimum wage earner relative to others, although such households appeared to spend a slightly larger portion of their income on food compared to other households with non-minimum wage workers. He also found evidence that the demand for many minimum wage goods and services (such as pub drinks, dry cleaning services and canteen meals) tended to be elastic. That is, demand was sensitive to price changes, which suggests that there might be little room to pass on price rises to consumers of minimum wage goods and services. However, using difference-in-difference1 estimation, he found some evidence to suggest that the relative rate of price inflation of some minimum wage goods and services (such as restaurant meals, canteen meals, take-away food, public houses, hotels, hairdressing, domestic help, dry cleaning/laundry and mini-cab services) did increase in the period after the minimum wage was introduced and that prices rose faster for those goods and services for which demand was relatively more price inelastic. This is the first study that we have commissioned to find econometric evidence that employers in some sectors have been able to pass on some of the costs of the minimum wage on to consumers.
1 A treatment group of goods and services (those affected by the minimum wage) are compared with a control group (those unaffected by the minimum wage). Prices of the two groups are then compared for periods before and after the introduction (uprating) of the minimum wage. The difference between these differences provides the difference-in-difference estimate. Statistical techniques are then used to test the statistical significance of these differences.
19 Dickerson (2007) examined employer-provided training following the introduction and subsequent upratings of the National Minimum Wage using the Labour Force Survey (LFS). Previous research by Arulampalam, Booth and Bryan (2004), using the BHPS, found that the training of minimum wage workers appeared to have marginally increased following the introduction of the minimum wage. Using standard difference-in-difference techniques, Dickerson's findings revealed that the introduction of the minimum wage appeared to have had no statistically significant impact on the provision of job-related training. This result held for men and women, adults and young workers. In summary he found that the minimum wage had had no effect (positive or negative) on the incidence of employer-provided training in the UK but concluded that this was consistent with the evidence on the other aspects of the National Minimum Wage, which revealed that, to date, any impact on the labour market had been negligible.
20 In 2005, when commissioning these research projects, we had in mind the slowdown in the economy at that time. We therefore commissioned Incomes Data Services (IDS) to look at the impact of economic recession on pay increases and the low-paid. IDS (2006a) looked at the changes in employment, wages and prices in the last recession in the early 1990s. Throughout the 19901993 recession, UK output declined and claimant unemployment increased to nearly 3 million. Despite this, employment in the two biggest low-paying sectors retail and hospitality remained stable throughout, as did employment in other lower-paying sectors such as fast food, restaurants and pubs, hairdressing, cleaning and catering. Over the course of the three years, pay settlements were closely related to the level of inflation, which fluctuated a great deal. Pay increases did not vary much by sector and increases in low-paying sectors kept pace with settlements generally, as did Wages Council increases.
21 IDS concluded that during the 19901993 recession, jobs in the low-paying sectors were not adversely affected, at least not on anything like the scale seen in manufacturing or construction, even though pay increases in the low-paying sectors matched or slightly exceeded inflation. However, these conclusions might not carry over to a recession that had different causes, such as a collapse in consumer spending.
Table A2.1
Low Pay Commission Research Projects
Researcher |
Project Title |
Aims and Methodology |
Key results |
Christian Dustmann, Tommaso Frattini and Ian Preston (University College, London) |
A Study of Migrant Workers and the National Minimum Wage and Enforcement Issues. |
The analysis built on an earlier study commissioned by the Home Office that used the Labour Force Survey. Extending this analysis and using the Census of Population, they attempted to identify the impact of immigration on wages in Great Britain and examined wage effects along the entire distribution.
Confining their analyses to the working age population, they compared the British-born population with those foreign-born but divided the latter group into established immigrants and new immigrants (those who had been in Britain for less than two years).
Using difference-in-difference techniques, they estimated the impact of migration along the entire wage distribution. They used the spatial correlation approach and the skill cell approach.
Instrumental variables were used to attempt to exclude the effects of migrants being drawn to economically prosperous regions. |
Migrants were, on average, younger and better educated than the locally available pool of labour.
Established migrants and British-born people had similar occupation and industry distributions.
Recent immigrants tended to be working in lower status occupations than suggested by their qualifications. Not only were they more likely to be in lower-paying sectors, they were generally paid less than natives and established migrants. Recent Eastern European immigrants were even more likely to be low-paid in the low-paying sectors.
Immigration decreased wages at the bottom end of the distribution but increased wages further up.
Immigration led to a widening of the wage distribution but the minimum wage has prevented wages at the bottom falling further. |
Stephen French and Jutta Möhrke (Centre for Industrial Relations, Institute of Public Policy and Management, Keele University) |
The Impact of ‘New Arrivals’ Upon the North Staffordshire Labour Market. |
A detailed study of the impact of migrant workers on the North Staffordshire labour market. The project included two small surveys, one of members of the Chartered Institute of Personnel and Development and one of migrant workers. It involved interviews with employer representatives in the retail and pottery sectors, with nursing agencies, and general and international employment agencies; and Citizens Advice Bureaux. Face-to-face discussions were also held with workers from the EU Accession States (A8), overseas students, and refugees and asylum seekers. |
Many firms from a wide range of sectors utilised migrant labour, primarily to address labour shortages and, to a lesser extent, skills shortages. However, migrant workers made up less than 5 per cent of the workforce in over three-quarters of workforces covered by the study.
The vast majority of migrant labour was employed in low-skilled, comparatively low-paid employment in the food processing, manufacturing and distribution sectors. The researchers found that employers, including agencies, had strong perceptions of what was, and what was not, migrant work and that this limited the opportunities for skilled migrant workers to move into high-skilled work. There was some evidence of employers substituting refugees in favour of A8 workers.
Migrant workers were generally recruited as part of general recruitment, with limited use of international agencies or direct international recruitment. Most migrant workers who took part in the study were paid at or slightly above the minimum wage. Employers’ experiences of using migrant workers had been positive in terms of productivity, flexibility and retention, and these factors had resulted in substantial savings in unit labour costs, without the need to cut pay rates.
The researchers found evidence of exploitation of migrant workers, in particularly when recruitment was through an employment agency, including, but not limited to, the underpayment of workers and abuses of the accommodation offset. Other issues highlighted, albeit based on a small sample, related to poor housing conditions, long working hours, detrimental contractual changes on arrival in UK, forced relocation and little, if any, knowledge of UK employment rights or how to access them. |
Researcher |
Project Title |
Aims and Methodology National Minimum Wage |
Key results |
Experian Business Strategies Limited (in collaboration with the Institute for Employment Studies) |
Investigating the Sectoral and Regional Effects of the 2003 and 2004 National Minimum Wage Upratings. |
The researchers looked for the sectoral and regional impact of the introduction and subsequent upratings on the minimum wage and tried to isolate it from other changes in the sectors and the economy.
They investigated this issue using industry shares of regional totals and comparing them with the UK.
They also compiled a measure of the potential impact of the minimum wage on average earnings, estimated from Annual Survey of Hours and Earnings (ASHE) data, to look at the minimum wage bite.
Due to data limitations they confined much of their analyses to retail and hospitality. |
Using the raw data, they found a clear, but small, negative correlation between the minimum wage and relative employment share growth in hospitality but no such discernible effect in retail.
Using a pooled regression for 1995 to 2004, they estimated that the minimum wage had a small but statistically significant negative impact on employment in hospitality.
There was no such effect in retail unless London and the West Midlands were omitted. They noted that they could find no impact from the introduction of the minimum wage on employment in retail or hospitality, using individual years. They did, however, find a negative effect in hospitality as a result of the large minimum wage upratings in 2001 and 2003.
Using similar methodology, they found no effect of the minimum wage on profits at a regional or sectoral level. However, they did find some evidence of a statistically significant reduction in company formation in distribution (wholesale, retail and motor vehicles). Weaker evidence was found for hospitality. |
Ann Denvir and George Loukas (Institute for Employment Studies) |
The Impact of the National Minimum Wage: Pay Differentials and Workplace Change. |
A telephone survey of 510 establishments in the retail, hospitality and personal services sectors to establish the extent of change to pay and pay structures, staffing, training, skills and work organisation attributed to the impact of the minimum wage.
Follow-up interviews with 25 firms that had made significant or innovative changes attributed to the impact of the minimum wage to explore the nature of the changes made in greater depth. Sample split between (i) firms that had made changes to address the impact on differentials and (ii) firms that did not address pay differentials in 2005 (and therefore they were assumed to have been compressed). |
The initial telephone survey found that fifty-nine per cent of firms reported that the minimum wage had had an impact on their business, with the hospitality sector the most affected. The main impacts were on labour costs (55 per cent of the whole sample), profits (38 per cent), prices (24 per cent), employment (23 per cent) and non-labour costs (22 per cent). Some 226 firms, or 57 per cent of those providing pay data, reported that they had increased pay rates as a result of the minimum wage increase in 2005. Of these 226 firms, 49 maintained pay differentials after the October 2005 increase (10 per cent of the whole sample) while 102 firms (20 per cent of the whole sample) did not. Around 31 per cent of the 510 firms made changes to the pay structure attributed to the minimum wage while 22 per cent reported making changes to staffing levels and hours. The most common responses were: changes in recruitment and retention practice, changes to the composition of the workforce (e.g. part-time/full-time mix) and recruitment of employees with different skills, of a different age or more migrant workers.
The interviews with 25 case study firms found that most had focused on internal reorganisation of rewards and working practices and had felt unable to adjust prices or business practices. There was no evidence of a relationship between decisions about whether to maintain differentials and changes to pay, staffing, training or work organisation. Common responses to pressures attributed to the minimum wage included changes to pay rates (such as reducing special or discretionary payments), and a reduction in staffing levels (through non-replacement of staff or reductions in both operating and working hours). |
Researcher |
Project Title |
Aims and Methodology |
Key results |
Alastair Hatchett, Catherine Chubb, Catherine Kirk and Nicola Allison (Incomes Data Services) |
The Effect of the Minimum Wage on Employment and Profits in an Economic Recession. |
IDS examined the experience of pay and employment during the economic recession of 1990 to 1993, using internal IDS data.
IDS looked at the relationship between the general level of settlements and price inflation (RPI) during the period, identifying those industrial sectors prone to pay freezes.
Internal data on Wages Council increases also enabled an assessment of statutory minimums over the period.
Following the study of the effect of recession on the low paid, the implications for the minimum wage were assessed. |
Organisations started to lift their lowest rates of pay in 1991 in anticipation of the introduction of a national minimum wage in 1992.
Despite the large increase in aggregate UK unemployment, they found that employment in the low-paying sectors remained stable throughout the recession, even though pay increases in the low-paying sectors matched or slightly exceeded inflation.
They concluded that a recession that had different causes, such as a collapse in consumer spending, might not have such little impact on the low-paying sectors as the recession of the early 1990s. |
Peter Sloane, Phil Murphy, Paul Latreille, Richard Jones and Melanie Jones (University of Wales, Swansea) |
Further Analysis of Flows Into and Out of the National Minimum Wage. |
The researchers used the New Earnings Survey Panel Data (NESPD) to estimate the probability of being in each of four states (employed at minimum wage, employed above minimum wage, unemployed or economically inactive).
They estimated exit rates from these states and investigate duration dependence. They used a random effects probit model to assess an individual’s propensity to be on the minimum wage depending on certain characteristics (such as age and gender and whether they were on the minimum wage).
They then used the Labour Force Survey (LFS) to examine inflows to and outflows from low pay at a regional level. |
The researchers found that minimum wage employment was more prevalent among women, the young, part-timers in the private sector, multiple jobholders, those in small firms and those outside the south east of England (not in London or the South East).
Although less likely than younger workers to be in low-paid employment, they found that older workers were less likely to exit such jobs and thus experienced longer spells in minimum wage employment.
For the majority of workers affected, minimum wage jobs were of short duration. However, the researchers found some scarring effects for a small group of workers who experienced longer spells of minimum wage employment.
The study found that more recent minimum wage entrants had a reduced probability of moving out of minimum wage jobs, so that the average duration of spells in these jobs was increasing.
It concluded that the minimum wage had maintained the wages of the low-paid without any deleterious effect on labour market. |
Researcher |
Project Title |
Aims and Methodology National Minimum Wage |
Key results |
Mark Bryan and Mark Taylor (Institute for Social and Economic Research, University of Essex) |
Identifying the Patterns of National Minimum Wage Receipt in Britain 1999–2004. |
The researchers used data for 1999–2004 from the British Household Panel Survey (BHPS) to look at how individuals moved into and out of minimum wage employment and to assess how these movements were related to the characteristics of individuals (single/multi-earner, marital status, number and age of children, housing tenure, and head of household’s personal characteristics).
They defined minimum wage recipients as ‘occasional’ if they were in minimum wage employment in one or two years but ‘persistent’ if they experienced minimum wage employment in three or more years.
The aim of the study was to investigate whether minimum wage jobs were stepping-stones into higher paid employment or whether they were part of a low pay–no pay cycle. |
They found that some 20 per cent of all workers had been in minimum wage employment at some point between 1999 and 2004. Most of these were occasional recipients, but nearly a third were persistent. Persistent minimum wage workers tended to be women (especially married women), those with no qualifications and older workers. In contrast single men were most likely to leave such employment.
Around 40 per cent remained in minimum wage employment the following year. Most of those leaving went into higher paying employment rather than non-employment. However, minimum wage workers spent more time out of work than other workers.
They also found that flows into minimum wage employment were highest from other low-paid jobs and unemployment.
The researchers noted that there was a core of persistent minimum wage employees who remained in low-paid jobs and were more likely to return to such jobs if they managed to leave.
They concluded that for many workers, minimum wage employment was a stepping stone to higher paid employment but there was also a large group that were part of a low pay–no pay cycle. |
Andy Dickerson (formerly Institute for Employment Research, University of Warwick, now University of Sheffield) 284 |
Longer Term Implications of the Minimum Wage: A Re-examination of Employer Provided Training. |
Recent evidence using the BHPS revealed some evidence that training of affected workers increased following the introduction of the minimum wage. This project sought to establish whether this result was robust, and to extend it using a larger dataset, the Labour Force Survey.
The research used standard difference-in-difference analysis to compare the outcome of those affected by the minimum wage with a control group that, although similar in certain characteristics, were not affected.
It explored the impact over subsequent upratings of the minimum wage, different forms of training (on and off the job training), and whether there were differences in any impact of the minimum wage on training provision.
The research looked separately at men and women, adults and young people. |
The research found that the introduction of the minimum wage had not significantly changed the provision of job-related training. It also found no effect from the subsequent upratings of the minimum wage.
There was no effect for men, women, adults or younger workers. The researcher checked the robustness of these results by looking at alternative specifications of the control group and using different measures of wages.
The research concluded that employers did not react to the minimum wage by either increasing employer-provided training in order to increase productivity and thus afford the higher wages, nor did they reduce employer-provided training as a means of reducing costs. |
Researcher |
Project Title |
Aims and Methodology |
Key results |
Jonathan Wadsworth (Royal Holloway College, University of London) |
Do Increases in the Minimum Wage Change Consumption Patterns? |
This study looked at the consumption patterns of minimum wage households and also the prices of those goods and services most affected by the minimum wage.
It used the Family Expenditure Survey and the Expenditure and Food Survey to document the consumption patterns of minimum wage households and investigated how they compared with other households over the period since the introduction of the minimum wage in 1999. Using Engel curves (which relate budget shares to total household expenditure), he examined how expenditure patterns had varied. He then used difference-in-difference analysis to investigate whether there were statistical differences in how expenditure shares changed between groups over time.
Using detailed breakdowns in the Retail Price Index, Wadsworth also investigated the impact of the minimum wage on the prices of certain good and services. He defined minimum wage goods and services as those produced by sectors with a high share of minimum wage workers in the stock of that sector’s total employees.
He looked at price increases at the time of the introduction of the minimum wage as well as subsequent upratings. |
The research found that average disposable income was around 50 per cent lower in households with an adult minimum wage earner than in other households with occupants in work.
It found that there were no significant differences in expenditure patterns across household types and that there were few significant differences in the shapes of the Engel curves between minimum wage households and other working households. The study found little evidence of any significant change in the spending patterns of households in receipt of a minimum wage income relative to other working households.
It found that minimum wage households did not exclusively consume minimum wage goods and services but they did spend disproportionately more on take-away food and less on cleaners and hotels. This means that any price effects of minimum wages will be spread across the population.
The study estimated that the inflation rate of nine minimum wage goods and services (restaurant meals, canteen meals, take-away food, public houses, hotels, hairdressing, domestic help, dry cleaning/laundry and mini-cab services) rose, on average, by an additional 0.8 percentage points above the rate of aggregate retail price inflation after the introduction of the minimum wage.
The research found that the relative price changes of minimum wage goods were more muted when compared with a set of domestically produced goods and services produced by sectors that employed a lower share of minimum wage workers in their workforces.
The researcher concluded that there may have been a small effect of the minimum wage on the prices of some goods and services produced by minimum wage workers (particularly those whose demand was relatively more price inelastic). |
Researcher |
Project Title |
Aims and Methodology National Minimum Wage |
Key results |
Alastair Hatchett, Sarah Miller, Catherine Kirk and Nicola Allison (Incomes Data Services) |
Monitoring the Impact of the National Minimum Wage in Low-paying Sectors. |
IDS looked at the impact of the 2005 increase in the minimum wage, and employers’ ongoing responses to the minimum wage, following on from previous work for the Commission. (The methodology was essentially the same as in previous years, although the scope was more limited.)
The researchers used a mixture of telephone and postal surveys (of around 1000 organisations) and followed up with more in-depth telephone-based interviews.
They focused their attention on hospitality (including fast food, pubs, hotels and restaurants); care homes; nurseries; leisure; retail; business services; manufacturing (modern apprentices); and the public sector. |
The study found that the minimum wage was having an increasing impact on pay setting and pay structures. It not only impacted on those workers directly affected but also on those higher paid in the firm and on higher paying firms competing in the same sector. Many firms had moved their pay review dates to 1 October.
The researchers found that differentials had been affected and that grade structures had been changed as a result of the minimum wage.
Many companies offering geographic pay systems to reflect varying labour market conditions had reduced the pay gap between geographic zones or reduced the number of zones.
Some sectors in hospitality had made greater use of wage rates below the adult rate for those aged under 22. However, in other sectors, the common practice was to pay adult rates at age 18.
The research found that the minimum wage had little impact on pay in the public sector as the lowest wage rates in the NHS, local government and the civil service were set at much higher levels.
Although effects on pay structures were found in all the low-paying sectors considered, only in the childcare sector did they find any evidence that these changes had led to falls in employment. |
Richard Croucher and Geoff White (University of Middlesex Business School and University of Greenwich Work and Employment Research Unit) |
Awareness of the Minimum Wage in the Hairdressing Industry: An Evaluation of the DTI/HMRC Targeted Campaign. |
The researchers adopted two main methods in taking forward the project. They conducted a postal survey of employers, workers and trainees, a postal survey of National Hairdressers’ Federation members and a telephone survey of salons. They also held focus groups with trainees, training organisations and employees and meetings with employers. |
Overall, awareness of the minimum wage among both employers and workers was patchy. Although awareness was higher among owners and managers than among employees and trainees, only a minority of respondents could correctly identify the rates and how they operated. Some significant patterns of knowledge, or lack of it, were apparent, with understanding of rates other than the main adult rate especially weak. The researchers highlighted, as an example of the lack of understanding, the fact that some respondents thought that employees from countries outside the European Union did not have to be paid the minimum wage.
There was some indication from the research that membership of the employers’ body, the National Hairdressers’ Federation, had had a positive effect on awareness, but this was inconclusive. Trainees showed low levels of awareness and understanding of the minimum wage.
The DTI/HMRC campaign had reached a modest proportion of the respondents to the surveys conducted, and in a small but significant number of cases this had led to positive changes in practice.
The campaign had also improved awareness of the National Minimum Wage Helpline, allowing specific individual enquiries to be made, although enquirers had no more general understanding of the minimum wage and how it worked than non-enquirers.
It was felt that improvements in the publicity given to the minimum wage could be made to further raise awareness levels. |
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