On the Employment Effects of Introducing a National Minimum Wage in the UK
| Date | 01 July 1990 |
| Author | Stephen Bazen |
| DOI | http://doi.org/10.1111/j.1467-8543.1990.tb00364.x |
| Published date | 01 July 1990 |
Brifish Journal
of
Industrial
Relations
28:2
July
1990
0007-1080
$3.00
On
the Employment Effects of
Introducing
a
National Minimum Wage
in the
UK
Stephen
Bazen
*
If
a national minimum wage were to be introduced in the
UK,
employment
would be reduced other things being equal. The crucial issue is the size
of
the effect. Using industry labour demand elasticities in conjunction with
estimates
of
the direct effect on average earnings
of
introducing a national
minimum wage at half and two thirds of male median earnings, the
estimated employment effects are high (at
250,000
and
880,000
respec-
tively). However the partial equilibrium nature
of
the methodology means
that the industry approach over-estimates the size
of
the likely effect.
Estimates from macroeconometric models support this contention but
provide a wide range
of
estimates.
If
the wages councils system
of
minimum wage setting were to be dismantled,
proponents
of
minimum wages would campaign more strongly
for
a
national minimum wage. The major concern, however, will be the size
of
the reduction in employment that will accompany its introduction. The
experience of the USA and France suggests that the employment effects of
national minimum wages are small and confined mainly to young persons
(see Brown
et
at.
1982;
Bazen and Martin
1988).
However, the introduc-
tion
of
a national minimum wage (NMW) in the
UK,
which would involve
the extension and standardization
of
the protection afforded by the wages
councils system, poses certain questions that cannot be answered on the
basis
of
the experience of those countries. First, the introduction
of
a
NMW will involve a discrete once-and-for-all increase in wages, whereas
the research
on
the experience
of
France and the
USA
relates to changes in
the level (and coverage) of an existing NMW. Second, the
extent
to which
employment responds to wage changes is an empirical matter, the magni-
tude of which is likely to differ between countries. Third, the introduction
of
a NMW will affect different industries to different extents, and the
composition of any employment effect is
of
considerable interest.
’
While minimum wages may induce labour supply changes, the notion that
*University
of
Kent
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