Up until now the National Minimum Wage (NMW) introduced in April 1999 appears to have been a policy success. So far there has been little evidence of a negative effect on employment. However, to date, the NMW has largely been operating in a period of prolonged economic expansion. Since the spring of 2008 the UK economy has experienced a downturn of significant proportions. In this report we examine the impact of the UK minimum wages in force during the 1980s and 1990s recessions when a system of Wages Councils was in operation.
Wages Councils set (different) minimum rates of pay in a range of low-paying industries. However there were still a large number of low-wage industries not covered by the legislation. This project analyses the impact of the two previous recessions on employment and wages in Wages Council sectors relative to other similar but uncovered low-wage industries using data from the New Earnings Survey and Workforce in Employment Survey form the panel.
The findings are informative about the likely consequences of the NMW in the current recession. We can find no significant detrimental impact on employment from the Wages Councils. We do find some evidence of negative hours effects from the Wages Councils, although we cannot find any further detrimental impacts through the recessions of the 1980s or 1990s. In addition, our individual level results are consistent with higher turnover in the Wages Councils sectors. We do find some evidence of a slowdown in turnover through the recessions, and some evidence that hiring increased in the 1990s recession in these low wage sectors.
None of the results here indicate that the National Minimum Wage will have any more detrimental impacts on employment through the recent Credit Crunch recession. However, one must be mindful of the fact that recessions can be very different. Our individual results suggest this. So the recent recession that the UK has experienced may play out differently across different sectors than have recessions of the past
