The level of the yearly uprating in the minimum wage has a direct impact on other low-wage employees, with large increases producing a positive impact on wage levels, argues a new paper from the University of York on the impact of the minimum wage. The paper sheds new light on the way employers’ wage-setting behaviour is affected by the legal minimum wage.

Key findings

• When national minimum wage (NMW) increases are relatively large in real terms (such as in 2003 and 2004) the wage growth of low-wage workers is ‘positively and significantly’ raised above what it would otherwise have been.
• When the NMW increase is relatively small (for example, in 2002) wage growth is smaller than it would otherwise have been.

These findings suggest that the NMW upratings are regulating the annual wage growth of workers on low wages. Employers are complying with the legally binding minimum wage: but they are holding down or offsetting the wage growth that they might have awarded in periods of low minimum wage increases, possibly to compensate for future or past minimum wage upratings.

The paper (Joanna Swaffield, Minimum Wage Hikes and the Wage Growth of Low-Wage Workers, Discussion Paper 12/10, Department of Economics and Related Studies, University of York) is available on the University of York website.