The Effects of Minimum Wages on Wage Dispersion and Employment: Evidence from the U.K. Wages Councils 47 Industrial and Labor Relations Review 1993-1994

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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