The UK Minimum Wage in Retrospect

This paper provides a retrospective summary of the effects of the UK national minimum wage (NMW) on labour market performance since its introduction in 1999. We use an ‘incremental differences-in-differences’ (IDiD) estimator to look at the effects of the NMW in each year through its differential impact across local labour markets. We find that the NMW is associated with a significant fall in wage inequality in the bottom half of the distribution. This suggests that geographical areas where the NMW ‘bites’ more have experienced larger declines in wage inequality than elsewhere. While the overall effect of the NMW on employment rates averaged over its existence is neutral, we do find small positive employment effects from 2003 onwards. Likewise, the association of the NMW with unemployment has been negative in recent years. NMW effects on hours have been mixed, but overall there is no compelling evidence to indicate that the NMW upratings have had an adverse effect on full-time total hours of work. Notwithstanding the clarity of these results, any causal interpretation of them might be compromised by the presence of concomitant policies that might have been correlated with the ‘bite’ of the NMW