hourly earnings distribution before and after the National Minimum Wage, The

Key points

* The National Minimum Wage was introduced in 1999

* Between 1992 and 1997 the hourly earnings of employee at the bottom of the hourly earnings distribution grew more slowly than the median. The hourly earnings of those at the top of the distribution grew fastest.

* by the agency of October 2003 the adult minimum wage had increased by means of 25 per cent.

* The hourly earnings of the lowest paid grew faster than the median between 1998 and 2003 Those at the upper extreme point of the hourly earnings distribution continued to have higher wage increases than the median.

* Similar findings are observ for all employee male and female, full-time and part-time.

Introduction

The depressed Pay Commission, in its 2005 Report, used the Annual view of Hours and Earnings (ASHE) to direct the eye at changes in the UK hourly earnings distribution since the introduction of the National Minimum Wage. This article reach outs this analysis by comparing wage increases prior to, and following, the introduction and later upratings of the National Minimum Wage. In order to make before and after comparisons, this article uses the novel Earnings Survey.

First, the National Minimum Wage and the available data are discussed. The economic background is then plant out.

Next, the overall changes in the hourly earnings of those aged 22 and above are analysed, before a more detailed direct the eye is taken at any differences by means of gender. Whether an employee works full-time or part-time is then considered. This article finishs by examining the implications of changes in the hourly earnings distribution for the sex pay gap.

The National Minimum Wage

The National Minimum Wage was introduced in April 1999 The initial horizontal was set at ??3.60 an hour (the adult rate) for those aged 22 and above with a lower level, ??300 an hour (the Youth unfolding Rate), being set for those aged 18 to 21 Those below 18 were not covered until October 2004

Table 1 present to views how the minimum wage has evolv since its introduction. Between April 1999 and October 2004 the adult minimum wage increased through nearly 35 per cent.

The data

It is useful to be able to compare a period just before the introduction of the minimum wage with the period that encompasses its introduction. Although the Office for National Statistics intends to reach forth the back series of the Annual scan of Hours and Earnings (ASHE)1 to 1992 it is popularly only available back to 1998 This means that it is not possible, at the twinkling to compare the period just before the introduction of the minimum wage with the period that encompasses its introduction, using ASHE data.

The greatest in quantity appropriate dataset for this design is therefore the New Earnings overlook (NES), which is available from 1970 to 2003 This provides a dataset which allows a comparison between a period before the introduction of the minimum wage and single that starts from the announcement of the minimum wage and overlays its introduction and initial upratings.

The introduction of the National Minimum Wage was announced in 1998 on the other hand not implemented until April 1999 As employer would have started to adjust their wages following the announcement of the introduction of the minimum wage, 1998 has been chosen as the start date for the period that encompasses the introduction of the minimum wage. NE data are single available up to 2003, for a like reason this was chosen as the extreme point date. For a comparative period, the five years ending in 1997 were chosen There are arguments for using slightly different periods from 1992 to 1997 For example, the elderly Wages Councils still existed in 1992 and that year also marked the extremity of the early 1990s recession. However, using a slightly different period - 1993 to 1998 - does not materially affect the conclusions. Similarly, the picture remains the same if the years 1999 to 2003 rather than 1998 to 2003 are used for the latter period.

It should be noted that the NE is not available for 2004 and will thus not capture the issues of the large minimum wage upratings in October 2003 and October 2004 Although the NE data are unweighted and include no imputation, they do overlay a random one per cent sample of employee Comparisons can be made between the NE and ASHE for 1998 to 20032 Indeed, similar conclusions are shown using ASHE data for 1998 to 2000 and 2000 to 2004 in Figure 211 of the depressed Pay Commission Report (2005).

Background

The periods 1992 to 1997 and 1998 to 2003 were similar in metes of price and wage inflation as shown in Table 2 Between April 1992 and April 1997 retail prices, as measured by the agency of the Retail Price Index, rose through 12.6 per cent compared with an increase of 114 by means of cent between April 1998 and April 2003 In contrast, average earnings (as measured by dint of the Average Earnings Index including bonuses) grew slightly faster in the latter period (221 for cent) compared with the earlier single (19.0 per cent).

Table 2 also exhibits changes in hourly earnings for various percentiles along the earnings distribution and the mean. The earnings in each year are ranked from the lowest paid to the highest paid and then divided into centesimals (percentiles). The median is the percentile that is in the middle ot the ranking and the lowest decile is the tithe lowest percentile. The lowest quartile is the 25th percentile. The extension in earnings can be compared at each percentile point.