Richard Dickens

The Evolution of Individual Male Earnings in Great Britain: 1975-95

In this paper I study the changing dynamic structure of male wages in Great Britain using the New Earnings Survey Panel form 1974-1994. Computing the covariance structure of individual wages by cohort I find evidence of a substantial permanent component of earnings that increases over the life cycle and a highly persistent, serially correlated transitory component. In addition, the estimated variances of both the permanent and transitory components have risen over this period, each explaining about half the rise in inequality. These results imply that the observed cross sectional rise in inequality is reflective of largely permanent differences between individuals that have grown over the last decade or so.

The effects of minimum wages on employment: Theory and evidence from Britain

Recent work on the economic effects of minimum wages has stressed that the standard economic model, where increases in minimum wages depress employment, is not supported by empirical work in some labor markets. We present a general theoretical model whereby employers have some degree of monopsony power, which allows minimum wages to have the conventional negative impact on employment but which also allows for a neutral or positive impact. Studying the industry‐based British Wages Councils between 1975 and 1992, we find that minimum wages significantly compress the distribution of earnings but do not have a negative impact on employment.

Non-linearities and Equivalence Scales

This paper focuses on the estimation and testing of equivalence scales in the context of a demand system with nonline ar logarithmic expenditure effects in its budget-share equations. The authors show that such nonlinearity enables one to identify the scal es without demographic separability restrictions on preferences and to avoid false rejection of the hypothesis that the scales are independ ent of the base utility level. The empirical analysis is based on micro data drawn from the U.K. Family Expenditure Survey. Copyright 1993 by Royal Economic Society.

Minimum wage minimum impact

The Low Pay Commission (LPC), acting on advice from the Office for National Statistics, initially estimated that some 1.9 million workers (8.5 per cent of employees) would have their pay raised by the introduction of the National Minimum Wage (NMW). In the light of data problems this has been revised downwards a number of times and now stands at 1.2 million workers (5 per cent). This is still likely to be an over-estimate of the number of workers affected. We find, that at most, 3.7 per cent (815,000) of adult workers received a pay rise. The LPC have recommended future increases in the NMW to £4.50 in October 2003 and £4.85 in October 2004. They estimate that some 1.3 million workers will be affected by the first increase and 1.7 million by the second. While these are substantial real increases, we believe that these are over-estimates of the number of workers affected. Despite fears of wage rises further up the pay distribution if other workers attempt to restore pay differences, we find little evidence of spillover effects from the NMW. There is no discernable impact of introduction of the NMW on aggregate employment. However, in the care home sector, the lowest paying sector in Britain, the NMW had a huge effect on pay, raising the wages of 30 per cent of workers. This resulted in small falls in employment in this sector. The NMW has modest effects on household incomes and poverty. It should be seen in the context of a range of policies designed to make work pay. Despite the fact that three-quarters of the beneficiaries of the NMW are women the impact on the gender pay gap is small. The difference between average wages of men and women was closed by about 0.5 percentage points.

Minimum Wages and Employment: A Theoretical Framework with an Application to the UK Wages Councils

Presents a theoretical approach to analysing the effects of minimum wages on employment which is intended to conform more with the functioning of actual labour markets than do other popular models traditionally used to analyse the likely effects of minimum wages on employment. The model has the desirable property of not only allowing for the negative effect predicted by conventional models, but also permiting a non‐negative impact which is consistent with several recent empirical pieces of work. Examines the employment effects of the industry‐level system of minimum wages which operated in the UK until September 1993. Results reported are not in line with the orthodox model as they suggest a neutral or positive impact of Wages Council minimum wages on employment between 1978 and 1990.

A Re‐Examination of the Impact of the UK National Minimum Wage on Employment

A general consensus has emerged that while the UK National Minimum Wage (NMW) raised the pay of low wage workers it did little to harm their employment prospects. This is in contrast to the US and other countries where a debate over minimum wage effects still rages on. We re-examine the evidence on the introduction of the NMW and look at subsequent increases through the recession focusing on several groups in the labour market. We find a reduction in employment retention among part-time female workers, the group which is most affected by the NMW. These effects deepen in the recession.

Child poverty in Britain

Relative child poverty rose sharply over the period 1979–97/98 and has since fallen by about half a million (4 percentage points). Absolute poverty changed little between 1979 and 1997/98 but has fallen sharply since then. Absolute poverty fell by 1.7 million between 1997/98 and 2001/02, with a half million fall in the last year alone. Changes in work patterns, wages and demographics all contributed to rising relative child poverty between 1979 and 1997/98. Demographics and work changes were responsible for the rise in absolute poverty. Benefit changes offset some of these increases. The absence of work was particularly severe on children in lone parent families. The Blair government’s welfare reforms raised work incentives and resulted in more work among low income families with children. These increases in work had modest effects in reducing child poverty and much of the reduction is attributable to benefit changes — work itself is not enough to pull many families over the poverty line. The Clinton administration introduced a range of welfare to work reforms in the US, increasing aid to those in work but cutting it to those out of work. Child poverty there has fallen but not as sharply. Increased work and demographic change have been the driving forces in poverty reductions. Median incomes, and hence the poverty line have increased rapidly and in conjunction further small increases in wage inequality and demographic shifts have meant that the government is making slower progress in reducing relative poverty than anticipated. While much progress has been made, current and planned policy reforms may not raise the incomes of the poor enough relative to median income to achieve the sort of poverty reductions needed to meet the stated poverty targets.