Re-examining the Impact of the National Minimum Wage on Earnings, Employment and Hours: The Importance of Recession and Firm Size

Research to date suggests that the UK National Minimum Wage (NMW) has raised the earnings of low paid workers, without significantly affecting their employment opportunities. We re-examine existing evidence and suggest the picture is less clear cut. We explore whether the impacts of the NMW differ for workers in different size firms. Examining more recent data we investigate whether the NMW has affected the employment opportunities of low paid workers during the recession. In contrast to previous research we find some evidence to suggest that the introduction of the NMW may have had a small adverse impact on the employment opportunities of particular low paid workers, although, in line with previous research, for many low paid workers we find no impact. In general, it is not obvious that the impacts of the NMW on employment have differed over the business cycle. In comparison to other workers, low paid workers are more likely to work in smaller firms. We find that on average any potentially harmful effects of the NMW on the employment chances of low paid workers tend to be more significant amongst employees in large firms. Identification of the average hours effects of the NMW is hampered by the difficulty in finding a suitable control group.