Identifying the employment effect of invoking and changing the minimum wage: a spatial analysis of the UK

This paper assesses the impact of the National Minimum Wage (NMW) on employment in the UK over the 1999-2010 period explicitly modelling the effect of the 2008-2010 recession. Identification of invoking a NMW is possible by reference to a pre-period (prior to 1999) without a NMW. Separate identification of the effect of incremental changes (and year interaction effects) in the NMW is facilitated by variation in the bite of the NMW across local labour markets. We address the issues of possible endogeneity and dynamic structure of employment rate changes, regional demand side shocks induced by the recession, and take account of the spatial dependence of local labour markets. Using system GMM, we conclude that there is no discernable effect of the NMW introduction or its uprating on employment but show how more naïve estimation may have revealed the various widely different positive and negative effects found in the literature.