Centre for the Analysis of Social Policy

How the National Minimum Wage affects flows in and out of employment: An investigation using worker-level data

Principal Investigator: Kerry Papps (Department of Economics)

Project Team : Matt Dickson (Department of Social & Policy Sciences)

Funder: Low Pay Commission

Duration: March - November 2015

 

Project rationale and aims

About the project

The project provides a detailed analysis of how various changes to the minimum wage system (and the school leaving age in England) have affected the labour market outcomes of workers of all ages (16 and over), and those of workers aged 16-24 specifically. By providing evidence of how the minimum wage has changed the level of flows into and out of employment, the study will examine whether the findings of North American literature can be replicated in the UK. The novel use of a pseudo-panel approach will also provide a robustness check for previous studies commissioned by the LPC that have used industry-level or aggregate data.

Emphasis will be placed on obtaining estimates of how much a given increase in the minimum wage (in pence) will change a worker’s probability of entering or exiting employment, although we will also examine how hours of work change among those who remain employed.

The project will draw on worker-level data from both the Annual Survey of Hours and Earnings (ASHE) and Labour Force Survey (LFS) for the period 1997-2014 and will examine the effects of all changes in the national minimum wage over that period. Both datasets have strengths and weaknesses. The ASHE contains accurate measures of hourly wages and follows participants for many years; however, it has a comparatively small set of control variables (for example, no data on education) and only contains information on people who are employed. The LFS has a richer set of control variables and tracks people who are unemployed or are engaged in education or training; however, only two observations (one year apart) are available on wages for each person and the wage data is known to be much less accurate than in the ASHE. The LFS will be primarily used to examine flows out of training and joblessness, for which wage data are not necessary.

The proposed project will draw on variation in the minimum wage across age categories arising from the annual changes in the youth and adult rates. For example, two otherwise identical workers born one year apart will be subject to different rates of the national minimum wage when they are aged 18. In addition, variation in a worker’s current wage rate gives rise to variation in the effect the minimum wage has on a specific worker who is currently employed.

 

Proposed outputs

  • A final report for the Low Pay Commission detailing our findings
  • A follow-up academic paper building on the research for the Low Pay Commission.


The work has inherent impact in that it feeds into the decision making process of the Low Pay Commission who set the national minimum wage for approximately 1.4 million workers.

Find out more about this project

Name: Dr Matt Dickson
Title: Reader
Department: Institute for Policy Research
E-mail: m.dickson@bath.ac.uk