MAXIMISING POTENTIAL IN THE WORKPLACE A lunchtime seminar series about employment relations & the world of work London, 31 March

Which Households Benefit from the National Minimum Wage? (based on work for the Low Pay Commission) Mark Bryan and Mark Taylor DTI seminar, London, 31 March 2005

(Pre)History 1909: minimum wages first introduced, covering the “sweated trades” (via Wages Boards/Councils) – 1993: decline and abolition of Wages Councils (covered 10% of workers at abolition) – 1999: no minimum wage except in agriculture. 1999: introduction of National Minimum Wage (NMW). Monitored by Low Pay Commission (made up of employer reps, trade union reps and independents).

History of NMW rates Main rate Youth Development Rate (18-21 yrs) years April 1999£3.60£3.00 June/October 2000 £3.70£3.20 October 2001£4.10£3.50 October 2002£4.20£3.60 October 2003£4.50£3.80 October 2004£4.85£4.10£3.00 October 2005£5.05£4.25£3.00

Who benefits? Part 1 Three-quarters (77%) of NMW workers are women Half (49%) are part-time workers More than two-fifths (43%) of NMW workers are both female and part-time. Disproportionately young workers (24% are under 25 years of age) NMW has narrowed the gender wage gap at the bottom of earnings distribution

Who benefits? Part 2 NMW workers concentrated in hospitality, retail, cleaning, hairdressing, health and social work sectors. Do all benefit? Little evidence of effects on employment, or other margins –such as hours, training. Enforcement issues

Which households benefit? NMW households = those with at least one worker on the National Minimum Wage What are the characteristics that distinguish NMW households? –Sex, age, size of household, children, number of workers, hours distribution, education, housing tenure… Where are NMW households in the income distribution? (How well is NMW targeted?) What are their other sources of income? What are the (predicted) gains from the October 2003 uprating and how are they distributed?

Main findings 1 NMW households are more likely to be couple-based, larger and to contain children –including non-dependent children. Heads of household (HoH) are older in NMW households. NMW households are also more likely to contain multiple earners, and FT/PT mix. Generally the HoH is not a NMW worker, instead it is the spouse or other member.

Main findings 2 Neither NMW households nor the absolute gains from uprating are heavily concentrated at bottom of the income distribution of all households. But they are concentrated at the bottom of the income distribution of working households. NMW workers are typically secondary earners in poor, large working households.

Method British Household Panel Survey, wave 12 (autumn 2002). Sample of 6052 households, containing individuals (16+ years), of whom 7619 working. Household net income, derived from BHPS data, equivalised. Identification of NMW workers (2 wage measures). Use age and date of interview (no self employed or armed forces). 570 NMW workers in 534 households. Compare NMW households, working households and all households.

Heads of household About 63% men (similar across hh groups). Older than working households (median age 45 vs 42), whereas individual NMW workers are younger. Less educated than working hh heads.

Older heads of household AgeNMW householdWorking hhsAll hhs Under Over Mean age Median age N households

Household structure Less likely to be single More likely to be couple with dependent or non- dependent children. Lone parent proportion similar. More likely to have children but also more likely to contain just one child. Children are older.

Household type NMW households Working households Single Couple without children Couple with dependent children Couple with non-dependent children Lone parent Other household N households

Work Status Less likely to be single earner and more likely to have 3 or more earners. Results hold when looking at couples only, and partitioning according to presence of children. NMW worker is usually not hoh, but spouse or other adult member. Similar in couple hhs. More likely to be PT only, and to be FT + PT (most common). Less likely to contain 1 FT worker only (most common in all working hhs) or 2 FT workers only. These effects hold controlling for other determinants of NMW hh (Housing tenure, region)

Number of workers

Number of workers – couple hhs

Who is the NMW worker? NMW workerAll householdsCouple households Head of household only Spouse of head only Both head and spouse Other adults only Head/spouse & others N households534411

Distribution of hours NMW households Working households Part-time worker(s) only Full-time worker only Full-time and part-time worker(s) Full-time workers only Full-time and part-time worker(s) or more full-time workers N households

Other income sources More likely to receive pension. More likely to receive income-related benefits and WFTC (and JSA). More likely to receive health-related benefits. More likely to receive child-related benefits. Less likely to receive interest/dividend payments. Similar difference for large amounts. About as likely to receive other types of income, inc lump-sum payments. Also holds for large amounts.

Other income sources Income source receivedNMW households Working households All households Lump-sum payment of more than £ Pension Disability benefits Income-related benefits Child-related benefits Working Families Tax Credit Job Seekers Allowance Interest/dividend payments of more than £

Position of NMW households within the income distribution

Gains from Oct 2003 uprating Use regression equation to predict ‘counterfactual’ wage in October 2003 and therefore gain from uprating. Mean predicted gain to NMW workers is £0.17/hr – but some gain more, some gain less. Mean predicted weekly household gain is £0.54 (all hhs), £6.23 (NMW households). Some evidence that the poorest NMW households gain (absolutely) more than richer NMW households. But main distributional effects are due to distribution of NMW households within households in general.

Distribution of gains (1)

Distribution of gains (2)

Conclusions NMW workers are mostly secondary earners in poor, large working households. NMW is not well targeted at the bottom of the income distribution of all households. But it is well targeted at the bottom of the income distribution of working households. Effect of recent large rises in NMW? –Reach into distribution of primary earners? –Induce labour supply from currently non-working households?

DISCUSSION