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47 Indus. & Lab. Rel. Rev. 319 (1993-1994)
The Effects of Minimum Wages on Wage Dispersion and Employment: Evidence from the U.K. Wages Councils

handle is hein.journals/ialrr47 and id is 321 raw text is: THE EFFECTS OF MINIMUM WAGES ON WAGE DISPERSION AND EMPLOYMENT: EVIDENCE FROM THE U.Kt WAGES COUNCILS STEPHEN MACHIN and ALAN MANNING* Using data on Wages Council coverage from the United Kingdom New Earnings Survey, the authors examine the impact of mandated minimum wages on wage dispersion and employment in the United Kingdom in the 1980s. They find evidence that a dramatic decline in the toughness of the regulation imposed by the Wages Councils through the 1980s-a decline, that is, in the level of the minimum wage relative to the average wage-significantly contrib- uted to widening wage dispersion over those years. There is, however, no evidence of an increase in employment resulting from the weakening bite of the Wages Council minimum pay rates. Instead, consistent with the conclu- sions of several recent U.S. studies, the findings suggest that the minimum wage had either no effect or a positive effect on employment. D ebate about the employment effects of minimum wage legislation revived in the United Kingdom during the campaign prior to the election of April 1992, when the Labour Party proposed introducing a na- tional minimum wage if it won the election (which it did not). Further fueling the de- bate, the incumbent U.K. Conservative Gov- ernment, in its 1993 Trade Union Reform and Employment Rights Bill, abolished the existing system of minimum wages, the Wages *Stephen Machin is Visiting Associate Professor at Harvard University and Reader in Economics at Uni- versity College London, and Alan Manning is Reader in Economics at the London School of Economics. The authors thank Sarah Gammage for her excellent and entertaining research assistance and Paul Gregg, Alan Krueger, David Metcalf, Andrew Oswald,John Schmitt, and participants in seminars at Birkbeck, UMIST, Warwick, and York for helpful comments. Councils that (in 1990) set industry-based minimum rates of pay for approximately 2.5 million low-paid workers.' Similarly, interest in minimum wages was stimulated in the United States by the in- crease in the U.S. federal minimum wage in the late 1980s, a development that spawned a number of studies on the economic effects of minimum wages. The debate has become The data used in this paper will be supplied to other researchers on request to Stephen Machin, Depart- ment of Economics, University College London, Gower Street, London, WC1E 6BT, U.K. 1The industry-based system of minimum wage legis- lation that existed under the Wages Councils is clearly different from the U.S. situation, in which a federal minimum wage exists but minimum wages may exhibit inter-state variation (see Neumark and Wascher 1992). It is unclear whether the Labour Party's proposals would have simply involved a national minimum rate or would have retained variation across industries. Industrial and Labor Relations Review, Vol. 47, No. 2 (January 1994). © by Cornell University. 0019-7939/94/4702 $01.00

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