MAXIMISING POTENTIALIN THE WORKPLACE

A lunchtime seminar series aboutemployment relations & the world of work

London, 31 March 2005

http://www.dti.gov.uk/er/emar/events.htm

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).

• 1986 – 1993: decline and abolition of Wages Councils (covered 10% of workers at abolition).

• 1993 – 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 ratesMain rate

Youth Development Rate (18-21

yrs)

16-17

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 under25 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 11830 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 householdAge NMW

householdWorking

hhsAll hhs

Under 22 2.6 1.1 1.7

22-29 8.5 12.1 10.4

30-49 51.3 53.9 44.7

Over 50 37.7 32.8 43.3

Mean age 45.5 43.9 48.0

Median age 45 42 46

N households 534 4500 6052

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 typeHousehold type NMW

householdsWorking

households

Single 7.4 18.1

Couple without children 26.0 25.4

Couple with dependent children

39.9 35.5

Couple with non-dependent children

15.3 9.2

Lone parent 8.4 10.0

Other household 3.0 1.8

N households 534 4500

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

0

10

20

30

40

50

60

70

1 2 3 4 or more

NMW householdWorking households

Number of workers – couple hhs

0

10

20

30

40

50

60

70

1 2 3 4 or more

NMW householdWorking households

Who is the NMW worker?NMW worker All households Couple

households

Head of household only 32.9 24.1

Spouse of head only 46.5 57.2

Both head and spouse 1.2 1.4

Other adults only 17.3 15.5

Head/spouse & others 2.2 1.8

N households 534 411

Distribution of hoursDistribution of hours NMW

householdsWorking

households

Part-time worker(s) only 15.6 10.5

1 Full-time worker only 13.0 35.3

1 Full-time and part-time worker(s)

32.6 19.4

2 Full-time workers only 20.7 25.9

2 Full-time and part-time worker(s)

8.6 4.2

3 or more full-time workers 9.5 4.7

N households 534 4500

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 sourcesIncome source received

NMW household

s

Working household

s

All household

s

Lump-sum payment 0.36 0.35 0.33

of more than £100

0.23 0.20 0.19

Pension 0.19 0.16 0.28

Disability benefits 0.12 0.10 0.17

Income-related benefits 0.13 0.09 0.17

Child-related benefits 0.49 0.43 0.36

Working Families Tax Credit

0.14 0.09 0.07

Job Seekers Allowance 0.07 0.03 0.04

Interest/dividend payments

0.31 0.40 0.39

of more than £100

0.16 0.24 0.26

Position of NMW households withinthe income distribution

0

5

10

15

20

25

Lowest10%

3 5 7 9

All Working-age Working-age with employed

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)

00.20.40.60.8

11.21.41.61.8

1 2 3 4 5 6 7 8 9 10

All Working age Working age with employed

Distribution of gains (2)

00.20.40.60.8

11.21.4

1 2 3 4 5 6 7 8 9 10

All householdsWorking age householdsWorking age households with at least one person in work

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