IMPACT OF THE MINIMUM WAGE ON THE INCIDENCE OF SECOND JOB HOLDING IN BRITAIN
| Author | Jonathan Wadsworth,Helen Robinson |
| Date | 01 September 2007 |
| DOI | http://doi.org/10.1111/j.1467-9485.2007.00429.x |
| Published date | 01 September 2007 |
IMPACT OF THE MINIMUM WAGE ON
THE INCIDENCE OF SECOND JOB
HOLDINGINBRITAIN
Helen Robinson
n
and Jonathan Wadsworth
nn
Abstract
The advent of any earnings boost, such as provided by the introduction of a
minimum wage, might be expected to reduce the supply of low-paid individuals
wanting to hold a second job. This paper uses difference-in-differences estimation
on a panel of individuals matched across successive Labour Force Surveys around
the time of the introduction of the national minimum wage in the United Kingdom
in order to estimate the impact of the minimum wage and its subsequent upratings
on second job working. There is little evidence to suggest that the extra pay
provided by the introduction of the minimum wage was sufficient to affect the
incidence of second job holding significantly. However, hours worked in the main
job by second job holders may have risen relative to those not covered by the
minimum wage; and hours worked in second jobs may have fallen for those whose
second job was initially below the minimum.
I Intro ductio n
Britain introduced a national minimum wage (NMW) in April 1999 with the
promise that ‘low paid workers will see their earnings rise by an average of one-
third’,
1
and the intention to ‘tackle working poverty’.
1
Given such intentions,
one might have expected to see significant changes in the low-paid labour market
after the NMW’s arrival. Yet most existing work that examines the effects of the
NMW introduction concludes that the overall effect on the level of employment
in Britain was broadly neutral (e.g., Stewart, 2004a, b), although there may have
been a small fall in the number of hours worked by low-wage workers (Stewart
and Swaffield, 2005).
The net impact of the NMW on employment, however, is of course affected
by combination of both labour demand and supply effects. Labour demand
This study was funded, in part, by a grant from the Low Pay Commission. Thanksto the editor
and two anonymous referees for helpful comments.
n
Cardiff University
nn
University of London and Centre for Economic Performance at the London School of
Economics
1
Low Pay Commission press release 18 June 1998, http://www.lowpay.gov.uk/lowpay/press/
news18_06_98.shtml
Scottish Journal of Political Economy, Vol. 54, No. 4, September 2007
r2007 The Authors
Journal compilation r2007 Scottish Economic Society. Published by Blackwell Publishing Ltd,
9600 Garsington Road, Oxford, OX4 2DQ, UK and 350 Main St, Malden, MA, 02148, USA
553
theories regarding the effects of the NMW have little to say specifically about
second job holding, other than through any effects on firms on the decision to
change the share of low hours jobs on offer, on which, as shown below, many
second job holders rely. While demand factors feature strongly in any
examination of the employment effects of a minimum wage, one area where
the labour supply effects of the NMW might be expected to dominate is in the
holding of second jobs. In the absence of constraints, the labour supply effect of
an increase in the NMW would be to raise employment and hours. Many people
with second jobs are low paid and so the advent of the NMW aimed at tackling
‘poverty pay’ might be thought to influence second job holding.
Simple classical labour supply theory, in which individuals are free to vary their
hours of work in a job, cannot explain the existence of second job holding.
Individuals simply choose the hours–wage package in the sole job that optimises
their utility. If, however, labour in the two jobs is not a perfect substitute, so that
the wage does not reflect fully the utility to be gained from holding a second job,
Conway and Kimmel (1998) show that individuals could choose an optimal two
jobs/hours package, which effectively equates the marginal utility derived from
both jobs. Individuals may also hold a second job as a hedge against unemploy-
ment, though the evidence supporting this hypothesis is weak (Bell et al., 1997).
Alternatively, in the presence of hours constraints, individuals could take
second jobs if the wage in the primary job is below the optimising wage, and
constraints on hours prevent individuals from working more hours on the main
job to make up any consequent income shortfall. If some workers take second
jobs because the income generated by the hours/wage combination in the first
job is low, then the imposition of a minimum wage might reduce the supply of
individuals willing to take second jobs. In the presence of hours constraints, the
effect of a minimum wage would be to raise the offered wage closer to the
desired wage, with the hours constraint in the first job restricting the substitution
effect so that the income effect dominates. In this case, the optimal hours–wage
combination moves closer to the hours–wage package provided in the main job.
Other things equal, this could act to reduce the incidence of second jobs among
low-paid workers, specifically among those initially below the minimum wage
relative to others not covered initially by the NMW.
There has been relatively little research on second job holding,
2
in part
because of lack of suitable data. Yet second job holding is an important issue in
the debate as to whether individuals really are able to adjust their hours of work
on the job in response to a change in wage rates. The existence of second job
holding is hard to reconcile with the simple competitive labour supply model of
unconstrained, flexible hours in the job. If, however, firms have preferences for
fixed working hours, then individuals may only be able to adjust hours following
a wage change by moving to a different job. If moving is difficult because of
frictions imposed by costs of mobility and information gathering, taking a
2
See Paxson and Sichermand (1996), Conway and Kimmel (1998) and Bluestone and Rose
(1998) for the most recent US studies; Fredriksen et al. (2001) for Denmark; Heineck and
Schwarze (2004) for the United Kingdom and Germany and Boheim and Taylor (2004) for
Britain.
H. ROBINSON AND J. WADSWORTH554
r2007 The Authors
Journal compilation r2007 Scottish Economic Society
To continue reading
Request your trial