Search Results

Since the turn of the millennium, the UK has relied almost exclusively on two policies to address the adverse consequences of low pay and labour market inequality: in-work tax credits and the minimum wage. Successful as these policies have been at supporting family incomes and propping up hourly wages at the bottom, increasing numbers of less-educated workers find themselves in low-quality jobs with negligible wage growth, little training and poor career prospects. Work by itself is rarely a route to earnings progression. This paper looks at the motivation behind the expansion of in-work tax credits in the face of growing wage inequality and in-work poverty. It focuses on the impact on longer-term outcomes through human capital and skills. It argues for a balance of policies that goes beyond tax credits and the minimum wage to foster individual wage growth and improve opportunities for career progression for less-educated workers.

Published abstract. Show less

Around 14 per cent of apprentices are paid the apprenticeship minimum wage in England (Low Pay Commission, 2022). These apprentices tend to be younger, on a Level 2 apprenticeship, and employed by small businesses (Ibid). The objective of this research project was to consider the experiences, attitudes, motivations, and pathways of individuals who have previously been apprentices and were paid the National Minimum Wage Apprentice Rate (NMWAR). We interviewed 10 current and former apprentices about their initial choices, their experiences on the apprenticeship, including pay, and their post-apprenticeship pathways and plans.

Most had discovered their apprenticeship through family or an advert online, with none having been given a positive view of apprenticeships by their school. We found that all apprentices were motivated by the opportunity to gain a 'foot in the door' and progress on a career path. However, whilst accepting the concept of earning a lower wage while training to earn more in future, those apprentices who were living independently were not able to make ends meet on the apprenticeship minimum wage. We conclude that Level 2 apprenticeships can be an effective stepping stone for a career but that pay needs to be set high enough that apprentices can support themselves.

Edited excerpts from publication. Show less

Statistical evidence from 58 countries shows that although people in rural areas are more likely to be in employment than those in urban ones, they also tend to have jobs that can put them at risk of experiencing inadequate labour protection as well as low pay. In particular, rural workers are paid, on average, 24 per cent less than their urban counterparts on an hourly basis, and only half of this gap can be explained by rural-urban discrepancies in education, job experience and occupational category. Developing countries exhibit a relatively wider gap, with the unexplained part also being larger. Furthermore, in many countries, certain groups of rural workers are at greater disadvantage, such as women, who, on average, appear to earn less than men in rural areas. However, institutional and regulatory frameworks, notably those that set minimum wages or seek to promote equal opportunities, can help to reduce labour market-related inequalities across the rural-urban divide.

Published abstract. Show less

While the federal minimum wage has remained fixed since 2009, many state and local governments have increased their minimum wages to redistribute income to low-wage workers. Based on these frequent policy changes, a large academic literature has shown that, on average, higher minimum wages mainly accomplish this goal: despite reductions in aggregate hiring, low-wage workers see increased earnings, with little change in the number of low-wage jobs (e.g., Cengiz et al. 2019). Despite these null findings, young Black men may be disproportionally affected by minimum wage increases, because unemployment data suggest that they are the most likely group to be on the margins of employment. In the summer of 2018, the unemployment rate in the United States for Black men 18 to 19 years old was 24.7 per cent, the highest for any demographic group (Bureau of Labor Statistics 2018). Previous evidence on how the minimum wage affects young Black men is both limited - considering a large national minimum wage increase in the 1960s - and inconclusive (Bailey, DiNardo, and Stuart 2021; Derenoncourt and Montialoux 2021), with modern-day impacts unknown.

Our paper provides new experimental evidence on how recent state minimum wage hikes affect racial disparities in the labor market. We submitted nearly 35,000 fictitious applications to about 15,000 unique jobs in states across three periods: 1) just before new, higher minimum wages were announced; 2) after they were announced but not yet implemented; and 3) for up to a year after the increase took effect. For every application, we randomized the perceived race of the applicant through the applicant's name and observed whether the employer called the applicant in for a job interview. Based on the employer responses collected from the 35,000 applications, we find that minimum wage hikes cut the racial differences in callback rates approximately in half. Before minimum wage hikes were announced, Black applicants received 8 callbacks for every 10 that White applicants received. After minimum wages increased, the callback gap shrunk by 2.6 percentage points, and Black applicants received a little over 9 callbacks for every 10 that White applicants received.

Excerpt from publication. Show less

This paper studies whether a minimum wage changes how labour markets respond to economic shocks. Using data from South Africa, we show that an agricultural minimum wage leads to higher mean wages with no significant impacts on mean employment. However, these positive aggregate outcomes hide important heterogeneity: the imposition of the minimum wage leads to substantial declines in employment - especially overall hours - in the sector in the wake of negative weather-related economic shocks, which typically exert downward pressure on wages. The increased variance of employment across years in the post-law period suggests caution in interpreting the overall welfare impacts of minimum wage laws.

Published abstract reprinted by permission of the copyright owner. Show less

In 2022, one of the main political challenges has been the need to address the cost-of-living crisis caused by an unprecedented increase in inflation. Prices had already started to increase in the second half of 2021 as a result of the combined effect of the economic recovery, supply-chain bottlenecks and a supply shortage of raw materials and basic inputs. In early 2022, the Russian invasion of Ukraine further exacerbated supply-chain tensions and increased inflationary pressures. The particularly high increase in energy and food prices eroded the purchasing power of a growing number of workers and their families, launching a cost-of-living crisis in which they found it difficult to make ends meet. Low-wage earners have been particularly hard hit by inflation because they tend to spend a higher share of their income on energy, food and other essential goods and services, where price rises are greater than for other, non-essential items (ILO 2022).

Against this background, minimum wages are currently a particularly important tool to safeguard the purchasing power of low-wage earners. The recently adopted European Directive on Adequate Minimum Wages in the European Union (European Parliament and Council of the European Union 2022), with its dual objective of ensuring minimum wage levels that enable a decent standard of living and of strengthening collective bargaining, can play an important role in supporting attempts to safeguard workers' purchasing power. This policy brief will assess the extent to which statutory minimum wages have been used as a tool to mitigate workers' loss of purchasing power, as well as the potential impact of the Minimum Wage Directive on minimum wage-setting in the Member States.

Despite substantial minimum wage increases, in almost half of the Member States with a statutory minimum wage, these were not sufficient to safeguard the purchasing power of minimum-wage earners in the current cost-of-living crisis. In order to better mitigate the negative effects of high inflation on the lives of workers and their families, Member States should take the following measures: (1) Timely transposition of the European Minimum Wage Directive into national law to promote adequate minimum wages and adequate collective bargaining coverage as two important tools to deal with the cost-of-living crisis; (2) Of the Directive's four criteria which Member States shall take into account when setting statutory minimum wages, the criterion 'purchasing power taking into account the cost of living' should be given clear priority in times of high inflation - this would also help to adjust statutory minimum wages more regularly and timely in order to protect the most vulnerable workers from rising prices; (3) Following the example of a range of countries, Member States should anticipate the effect of the Minimum Wage Directive by already applying its double decency threshold for adequate minimum wages of 60 per cent of the median and 50 per cent of the average wage as the benchmark for setting statutory minimum wages; and (4) Because high collective bargaining coverage ensures higher wage levels, Member States should also go early by taking the Directive's 80 per cent threshold for adequate collective bargaining coverage as the benchmark for establishing action plans to gradually increase collective bargaining coverage.

Excerpts from publication. Show less

This paper proposes an empirical approach to decompose the distributional effects of minimum wages into effects for workers moving out of employment, workers moving into employment, and workers continuing in employment. We estimate the effects of the minimum wage on the hazard rate for wages, which provides a convenient way of re-scaling the wage distribution to control for possible employment effects. We find that minimum wage increases do not result in an abnormal concentration of Job Leavers below the new minimum wage, which is inconsistent with employment effects predicted by a neoclassical model. We also find that, for Job Stayers, the spike and spillover effects of the minimum wage are simply shifted right to the new minimum wage. Our findings are consistent with a model where entry wages are set according to a job ladder, and where firms preserve their internal wage structure due to fairness or internal incentives issues.

Published abstract reprinted by permission of the copyright owner. Show less

While the direct impacts of minimum wage changes on employment have received considerable attention, these policy changes have the potential to impact skill attainment by changing the opportunity cost of college enrollment. Using institutional data on college enrollment and program completion, we find that enrollment falls markedly among students at public two-year institutions in response to increases in the minimum wage. The largest enrollment effects are seen for those students who are enrolled in part-time courses of study at community colleges. The effect of minimum wage changes on credential attainment is limited to modest effects for women at the associate degree level, suggesting that the changes primarily impact the enrollment of students who are unlikely to have been diverted from degree attainment.

Published abstract. Show less

The Fair Labor Standards Act's minimum wage laws provide important protections for workers. However, it still permits employers to pay subminimum wages to youth under age 20, student-vocational learners, full-time students, individuals with disabilities, and tipped workers. This has important economic consequences, especially for economically vulnerable workers in the low-wage sector. Using 2009-2019 Current Population Survey - Merged Outgoing Rotation Group (CPS-MORG) data (n = 502,976), we find that 3.7 per cent (about 1,565,805) of hourly workers were paid subminimum wages based on state minimum wage laws, and subminimum wages were associated with increases in family poverty by 1.4 percentage points. Importantly, the relationship between subminimum wages and poverty differed across workers with particularly telling results for disability. Unlike for youth and students for whom access to subminimum wage labor was associated with decreased family poverty, subminimum wage work compounded already high poverty rates for hourly workers with disabilities. Within a broader context of low-wage work, this research speaks to the impacts of subminimum pay on economic insecurity and poverty - an ongoing social problem disproportionately affecting people with disabilities.

Published abstract. Show less

When minimum wages increase, employers may respond to the regulatory burdens by substituting away from disadvantaged workers. We test this hypothesis using a correspondence study with 35,000 applications around ex-ante uncertain minimum wage increases in three U.S. states. Before the increases, applicants with distinctively Black names were 19 per cent less likely to receive a callback than equivalent applicants with distinctively white names. Announcements of minimum wage hikes substantially reduce callbacks for all applicants but shrink the racial callback gap by 80 per cent. Racial inequality decreases because firms disproportionately reduce callbacks to lower-quality white applicants who benefited from discrimination under lower minimum wages.

Published abstract. Show less