<Criminal Law Essays and Dissertations

The effect of minimum wage on unemployment in the UK

Extract 1 : History of the National Minimum Wage
Extract 2 : Labour Market Impact
Extract 3 : Literature Survey
Extract 4 : Survey
Extract 5 : Results and Analysis

The labour market impact

When the Low Pay Commission issued its third report in March 2001, it was pleased to note that the rate of unemployment stood at 5.3 per cent in the final quarter of 2000. It said this was the lowest level since the UK adopted the ILO system of measuring unemployment in 1984.
The LPC said: "On the basis of this measure over the period since the minimum wage was introduced, unemployment had fallen by just under 235,000." 5 Consider the updated figures. Standardized unemployment figures from the OECD show that UK unemployment fell from 6.3 per cent in 1998 to a low of 5.0 per cent in the second quarter of 2001. Since then, there has been a very slight increase to 5.2 per cent in August 2001. This might be due to the downturn in the US and global economies which commenced in 2001.
Despite this, the OECD data show that in mid-2001 UK unemployment levels compared very favorably with the OECD average of 6.8 per cent and the Euro-zone figure of 8.4 per cent. These aggregate unemployment data strongly suggest that the UK labour market was not adversely affected by the introduction of the National Minimum Wage. If anything, there may have been a positive effect.
However, before drawing any sweeping conclusions, it is necessary to go further and carefully examine the implications in those segments of the labour market where the low-paid workers are concentrated. If anyone had stood to lose their jobs as a result of the National Minimum Wage, it would have been workers in marginal low-productivity sectors of the economy.

It may be seen that employment in the security sector has risen relatively quickly while employment in the hospitality and retail sectors has increased in line with the national average. On the other hand, employment in textiles and cleaning has declined dramatically. However, the LPC has argued that employment in the textiles and the cleaning sectors has declined in the number of unemployment.
The October 2001 updating of the minimum wage represented a significant increase in earnings for many low-paid workers. The National Commission for Minimum Wage estimate that workers in 1.1 to 1.5 million jobs benefited from the increase and that, as a result, the aggregate wage bill rose by up to 0.11 per cent. The smaller updating at October 2002 benefited people in fewer jobs - around one million.
Low pay is concentrated among certain sectors and groups of workers. Women, part-time workers, young people and some ethnic groups in particular benefited. The minimum wage has had a significant impact on the gender pay gap at the bottom of the earnings distribution. Once again we note the importance of accurate data on low pay to our assessment of the impact of the minimum wage. The National commission on Minimum Wage recommends that the ONS should make continued efforts to improve these data.1

  1. The National Commission for Minimum Wage Report 2002[^ Return]

Bibliography

International Labour Organization Survey Reports 1987:2002

The Report from the Inland Revenues 1999:2002

The National Commission for the Minimum Wage Reports 1999:2002.

Research Methodology: Greene & Taal

OCED Reports on United Kingdom: 1990:2002

 

Extract 1 : History of the National Minimum Wage
Extract 2 : Labour Market Impact
Extract 3 : Literature Survey
Extract 4 : Survey
Extract 5 : Results and Analysis

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