Thenationalminimumwageinrecession:evidence
fromUK
LeiXU
June2016
Abstract
Thetopicofmysecondchapteristostudyage-dependentminimumwage.The
NationalMinimumWage(NMW)wasfirstintroducedin1999fortwogroups,
thoseagedabove22and18-21yearsold.Theage-dependentminimumwageis
usedtoregulatetheflowofyoungworkersintothelabormarket.InthispaperI
examinetheeffectofincreaseinminimumwageonemploymentopportunities
byapplyingSharpRegressionDiscontinuity(SRD).Iarguethattheeffectof
minimumwageincreaseonlaborsupplymaybeaffectedbylocalunemployment
rate,leadingtoacrowdingouteffectcomingfrompeoplewithhigherlevelof
education.Myinitialresultsshowthatanincreaseinminimumwageresultsin
higheremploymentopportunityforhigherskilledworkersandexaminesthe
existenceofcrowdingouteffect.Moreover,individualswithhigherlevelof
educationtendtotransferfromatemporaryjobintoamoreformaljobeasily
afterturningintohigherminimumwagelevel.Theevidencesuggeststhatthe
labormarketinwhichtheminimumwageprevailsisverycompetitiveina
recessionaryeconomy.
JELClassification:J22
Keywords:minimumwage,laborsupply,regressiondiscontinuity
LeiXu
EconomicStudies,UniversityofDundee
E-mail:[email protected]
1Background
Theintroductionofminimumwagehasbeenextensivelyexaminedbothby
policy-makersandeconomists.Inthestandardeconomicstextbook,ahigher
minimumwageresultsinreducedemploymentinaperfectlycompetitivelabor
market.Mostexistingpapersexaminetheeffectofintroductionofminimum
wageonemploymentopportunitiesacrossgroups(CardandKrueger1994,
Guiliano2013,Machinetal2003).Aconsensusaboutminimumwageisthata
modestincreaseinminimumwagewillnotleadtolargereductionof
employmentempirically.Buttheeffectofminimumwageonthesestillremains
manyunaddressedquestionsfromdifferentdimensions(Metcalf2008).
TheNationalMinimumWage(NMW)inUKwasfirstintroducedin1999for
people,above22yearsoldorbelow21yearsoldandabove18yearsold
respectively,whereasindividualsunder18yearsoldwerenotaffectedbythe
minimumwage.In2004,aminimumwagefor16and17yearoldwas
introducedatalowerratethantheonefor18-21yearsold,whichcomposed
age-dependentminimumwage,buttheNMWin1999wasalsoagedependent.
Theage-dependentminimumwageisusedtoregulatetheflowofyoungworkers
intothelabormarket.TheminimumwageinUKisincreasingonthebasisof
worker’sageanditbeginsfrom16yearsold.Bydifferentiatingtheminimum
wageitgivesemployersmotivationtorecruityoungerworkerstominimizethe
cost.However,thisage-dependentsystemwillleaveemployersspaceto
discriminateemployeesontheirageandqualifications(suchasapprenticeships).
Ithelpsyoungworkerswhoaremostvulnerableinthelabormarketinto
employment.Thediscriminationmayalsoexhibitsubstantialheterogeneitywith
regardstoworker’sage,qualificationsandsectorofemployment.Aftercoming
theagethresholdalreadymentionedabove,individualshavehigherexpected
wages,leadingtohighersearchintensityandmotivationforthejob.Potentially
itresultsinhighermatchingrateandproductivity.Ontheotherhand,italso
inducesmorecompetitiontolabormarketinwhichthetightnessisalreadyhigh.
Inthispaper,Ihighlightthepossibilityofacrowdingouteffecthappeningina
recessionaryeconomybroughtbyhighercompetitionafterincreaseinminimum
wage.Thestartingpointiscorrect,butthepolicycouldputmacro-economyinto
considerationtobalancethepositiveandnegativeeffects.
Atthetimeofintroductionofminimumwagebetween16-17,Education
MaintenanceAllowance(EMA)wasintroducedtofacilitateindividualstoobtain
moreeducationbetween16to18yearsold.Bothpoliciesaimtoreduceyoung
outofunemploymentbyeithergoingtofurthereducationorworkplace.After
introductionofthepolicy,theenrollmentratefor16-17yearsoldincreasedby
almost5%(NEET2005-2006).AlthoughEMAisdesignedforencouragingmore
peopleintoeducation,itmayinduceindividualsfromemploymentinto
educationeither.Theintroductionofminimumwageworksinasimilarwaytoo.
Soempiricallytheincreaseinenrollmentandemploymentratecouldbea
compositioneffectbybothpolicies.
Thepaperisorganizedasfollows.Insection2Iamgoingtointroducethe
literaturereviewanddiscussmycontributionandproblems.Themethodologyis
discussedinsection3.Insection4,itistheintroductionofdataset.Theresults
andgraphsaregiveninsection5.
2.Literaturereview
Asabroadtopicminimumwageisrelatedwithanumberofdimensions.The
mostattractivedimensionistheunemploymenteffectandwagedistribution.As
ananti-povertytool,ithasbeenintensivelyandextensivelydiscussedintermsof
thebalancebetweenincomeinequalityanddis-employment.Moreover,some
studieshaveshownthatminimumwageislinkedtothedecisionbetween
education,temporaryandpermanentjob(Croftenetal2009,NunezandLivanos
2015).Ithasbeenwelldeveloped,butstillmanyproblemsareunaddressed.
2.1Employmentprobability,crowdingout,spillovereffectandwage
distribution
Largeamountofstudyinvestigatetheeffectofminimumwageonemployment
orwagedistribution,sinceaspolicyinstrumentofminimumwageisregardedas
atooltoregulatewagedistribution.Standardeconomicmodelsuggeststhat
increaseinminimumwagewillleadtodecreaseinemploymentespecially
youngerworkersandaspillovereffect.Afterthegeneralizationofstandard
model,theconcept‘monopsony’providesanotherexplanationfortheeffectof
introductionofminimumwage.Amodestincreaseinminimumwagemayleadto
positiveemploymenteffect(CardandKrueger1995).Fromempirical
perspective,increaseinminimumwagedoesn’thavesignificantnegativeeffect
onemployment(CardandKrueger1994,Guiliano2013).InUK,Machin,Rahman
andManning(2003)examinetheeffectofintroductionofminimumwageon
wages,basedontheirowncollecteddata.Theirresultssuggestthatthe
minimumwagewillgreatlydecreaseincomeinequalityandonlyreduce
employmenttosomeextent.Increaseinminimumwagewillnotcausedamage
toyoungerworkersaslongastheminimumwageisnotsettoohigh.Thenby
risingupminimumwageitwillhelpyounggetintolabormarket.Stewart(2004)
examinestheeffectofNMWonemploymentprobabilitybyusing
Difference-in-DifferencebasedonBritishHouseholdPanelSurvey(BHPS),Labor
ForceSurvey(LFS)andNewEarningsSurveys(NES)andconcludesthatthereis
nosignificantnegativeeffectonemployment.However,theresultsmightbe
biasedduetospillovereffect.BrochuandGreen(2013)arguethathigher
minimumwageisassociatedwithlowerhiringrateandlowerjobseparation
rateusingCanadiandatafrom1979to2008.Unskilledworkersaremostlikely
affectedbytheincrease.Theyexaminethereasonbehindthetotaleffecton
employment.Dickens,RileyandWilkinson(2014)examinetheeffectofincrease
inminimumwageonemploymentpossibilitiesandreturnstoadultsbasedon
RDmethod.Theyarguethattheminimumwagewillincreasetheadult
employmentformale.However,theydon’ttaketheeffectoflocalunemployment
rateintoconsideration.Theliteraturesuggeststhatalimitednegativeeffecton
employmentfromintroducingorincreasingminimumwage.Andsincetheir
datasetisfrom1999to2009,EMAandintroductionofnewbandofminimum
wagemayalsoinducebiastotheresultseither.Dickens,RileyandWilkinson
(2015)examinetheemploymenteffectonthemostvulnerablegroupintheUK,
namelypart-timefemales,basedonLFSandNESbyusingDID.Theyconclude
thattheincreaseinminimumwagewilldecreasetheemploymentprobabilityfor
part-timefemaleanditwillgetworseintherecession.Intheirwork,they
examinetheheterogeneityoftheeffectofminimumwage.Theeffectcanbevery
diversedependingonthegroups.TheambiguouseffectofEMAandnew
minimumwagestillmaybiastheresults.
Besidestheeffectofminimumwageoncoveredgroup,theremightbespillover
effectaswell.Byincreasingminimumwageitwillincreaserelativepriceforlow
skilledworkers,leadingtohigheremploymentopportunityandwageforhigher
skilledworkers.Second,duetoincreaseinminimumwage,employersmay
reorganizetheirproductionprocess,increasingproductivity.Third,itwillalso
raisethereservationpriceforunemployedworkers.However,besidesthe
severalreasonssometheoreticalmodelalsoriseuptoexplainthespillovereffect,
buttheempiricalresultsarestillcontroversial.Dependingonthetreatedgroup
byincreasinginminimumwage,theemploymentopportunity(dis-employment
effect)canbebiasedduetoincludingspillovereffectcomingfromuntreated
group.DickensandManning(2004)arguethatthereislittleevidenceforthe
existenceoflargespillovereffectbasedonLee(1999)’sapproach.Stewart(2012)
alsosuggeststhatthereisaweakevidenceofspillovereffectinUK’slabor
market.HisresultsarebasedonDIDandcomparisonbetweenminimumwage
coveredgroupanduncoveredgroup.Thecounterfactualgroupinhisdatais
thoseindividualswhoarenotaffectedaboveminimumwagebecauseof
preexistingwage.
Atthemoment,mostexistingliteraturefocusedoneffectofminimumwage
withoutseriouslyconsideringtheeffectofmacro-side.Theminimumwagemay
haveadverseeffectindifferentperiod.Inarecessionaryeconomy,besidesthe
effectsImentionedbefore,theremayexistcrowdingouteffectinthegroup
coveredbyminimumwage.Theeffectmaydependonthetightnessoflabor,
especiallyforyoungerworkers.Addisonetal(2013)examinetheeffectof
increasinginminimumwageonemploymentandreturnintherecessionofU.S
basedonmoredescriptiveanalysis.TheyfocusontheFoodServicesand
DrinkingPlacessector.Inlinewithexistingliteraturetheydon’tfindsignificant
negativeeffectofminimumwageontotalemployment,buttheyfind
employmentofyoungerworkersissignificantlyaffectedbythetightnessof
youthlabormarketandalsoitmayvarybydifferentservices.Arulampalamand
Stewart(1995)examinetheeffectoflocalunemploymentrateonenteringand
exitingunemploymentindifferenttime.Intheirdatathesecondperiodof
unemploymentrateisdoubledcomparedtothefirstperiod.Intheirwork,local
unemploymentrateisusedasanindexofdemandconstraint.Theirresults
suggestthatlocalunemploymentratehavestrongernegativeeffectonthe
exitingofunemployment.HaurinandSridhar(2003)examinethereservation
wageandsearchdurationinarecessionaryeconomy,basedonPSID.Boththeir
OLSand2SLSresultssuggestthatthereservationwageandsearchdurationwill
notbeaffectedbylocalunemploymentrate.However,theresultsmightbebased
bytheweaknessofcorrelationbetweenlocalunemploymentrateand
employmentoutcome.Gautieretal(2002)explorethecrowdingeffectoflower
educatedworkersinrecessionbasedonafirmleveldataset.Theydon’tfind
significanteducationupgradingduringrecession,althoughaverageeducationof
outflowincreasedduringrecession.Howevertheirresultsmightbebiaseddue
tothedefinedjobcomplexitylevelandeducationlevel,sinceupgradingmay
happeninaverymarginaleducationlevel.
Onlyfewpapersdevelopedtheoreticalmodeltoexplaintheeffectofminimum
wage.Gorry(2013)developatheoreticalmodelbasedonsearchandmatching
model(Pissarides1994)toexploretheeffectofminimumwageonyouth
unemployment.Doladoetal(2000)extendthesearchmodel(VanOusand
Ridder1995)toexplainthecrowdingouteffectinSpain.Buttheirassumption
regardingleisureisperhapstoostrong.Assomeworkerswillwaitopportunity
forskilledjobinasubsequentperiod.Themodelcanbemoreendogeneous.
Thetypeofjobmayalsoimplythedifferenceofemploymentopportunity.
Comparedtotemporaryjobs,permanentjobwillmakefirmfacemoreriskwhen
theydecidetohireaworkerduetotheprotectionoflaborlaw.Althoughthe
costsoftemporaryjobislessthanpermanentjob,thereturnoftemporaryjobis
stilllowerthanpermanentjobduetolowerhumancapitalinvestmentand
personalabilityinpractice(Boothetal2002).Thechoicesarediversewhen
youngpeoplestarttheircareeraftercompletingeducation.Ontheonehand,
individualmayfacedifferentchoicesoutofdifferentmotivations.Ontheother
hand,employerswillalsobalancebenefitandcost.Employersfacemore
uncertaintycomingfrommarketandmayneedabufferoftemporaryworkersto
adjustproductionwithminimumcost.Sometimestheyarereluctanttoprovide
morepermanentjobforuntrainedyoungworkers.NunezandLivanos(2015)
discussseveralreasonsofindividualtostartfromtemporaryjobratherthan
findingapermanentjob.Firstly,doingatemporaryjobmayshowtheirtalentor
knowledgeinsomefieldtominimizetheasymmetricinformationbetween
workersandemployers.Thetemporaryjobcanbeseenasa“stepping-stone”for
theirlaterjob.Secondly,employersmayalsofacemorerisktorecruitayoung
workerduetothehighertrainingcost.Thentheyprefertogiveatemporary
contractfirst.Faccini(2013)arguesthattemporarycontractasascreening
devicehassignificanteffectonreducingunemploymentrateinEuropean
countries.Thirdly,bothsideswillconfrontopportunitycost.Italsovariesgiven
thestrengthofemployersandworkers.Lastly,duetotheinefficiencyoflabor
bargainingpowermarket,itishardtomatchperfectlybetweentwosides.Booth
etal(2002)examinethedifferencebetweentemporaryandpermanentjobinUK.
Theirresultssuggestthattemporaryjobhavelowerjobsatisfactionand
well-being,butthereisalsoevidenceofsteppingstoneeffectamongtemporary
job.However,Isuspecttheremayexistendogeneityoftheirtransitionresults.
EngellandtandRiphahn(2005)arguethatworkerswithtemporarycontract
mayexpresshighereffortinordertotransferintopermanentcontractunderthe
hypothesisthatemployerswillscreenworkersthroughtemporarycontract.That
impliestheevidencethattemporaryhassteppingstoneeffect.Intheirpaper,
theyselectwhetherworkerwillprovideunpaidworkhoursandabsentreasons
asmeasureofemploymenteffect.Duetoalackofidentificationstrategyfor
individualstakingpermanentortemporaryjob,theresultsstillcouldbebiased,
leadingtoambiguousconclusions.
Amountofliteraturehascommentedontransitionbetweenpermanentand
temporaryjob.Moreover,severalreasonshavebeenproposedtoexplainthe
behaviorofindividual’stransition,theoreticallyandempirically.But,tomy
knowledgefewliteratureshaveexaminethetransitioncausedbyincreasein
minimumwage.
2.2Mywork
Inthispaper,Iamgoingtofirstlyexaminetheeffectofminimumwageon
employmentopportunity.Secondly,Iamgoingtoexaminetheeffectonfinding
whichtypeofjobfordifferentgroups.
Aftertheintroductionoftheminimumwage,theemployersneedtimeandeffort
toreorganizeproductionprocessinordertominimizethecost.Thewagegap
betweenagegroupsmayencourageemployerstoreplaceolderworkerswith
youngerone.Unlikestudyofintroductionofminimumwage,thispaperfocuson
theeffectofincreasingminimumwageonlaborsupply,ratherthanthe
equilibriumoflabordemandandlaborsupply.Thispaperfocusesontheeffect
onlaborsupplywhenindividualsturninto21yearsoldandgethigherwages.
Afterturningintohigherminimumwageband,thereturnofindividualswhofind
ajobcoveredbyminimumwageareexpectedtobelargelyrisenup,leadingto
highersearchintensityforthoseunemployedindividualsandemployedworkers
whowanttofindamoreformaljob.Thatwillresultinhighermatching
probabilityandcompetitionamonglabormarket.Onthecontrary,firmswillface
moreproductioncost.Sincetheincreaseinminimumwageisananticipated
event,Idon’tseestrongreasonsemployerswillreorganizetheirproduction
processonceagain.Butstillemployersmaydecreaseemploymentorreplacing
youngerworkertosavethecost.MyworkissimilartoDickensetal(2014)in
whichtheyalsouseLFSandRD.TheRDisbasedonthedurationbetweenmonth
ofsurveyandmonthofbirth.Thiswillcomposeapairofcomparabletreatment
groupandcontrolgroupwhichcangiveusacausaleffectincurredbyminimum
wage.
Oneassumptionhereisthatthereisnoadministrativecosttoemployer,since
theemployermaypreferstableworkersiftheadministrativeisnon-negligible.
Thentheresultswillbebiasedupduetotheemployer’spreferencefrom
employeeside.Inthiscase,itisareliableassumptionsinceemployerpostsajob
giventheirlabordemandofproductionprocessandtheworkersacrosscut-off
pointwouldbeidenticaltoemployer.Anotherpotentialbiascomesfromthe
unemployedsiderelatingtoreplacementofyoungerworkers.Thisismore
ambiguous.Duetothenatureofagedependentminimumwage,employerhas
motivetoreplacetheworker,althoughworkersareidenticalaroundcut-off
point,thenumberofworkersonthelefthandsideofcutoffpointislessthanthe
righthandside.Butemployer’sfiringdecisionmaynotonlydependon
individual’sagebutalsotheirownproductionprocess.Thereisnoclear
conclusionthatwhetheremployerswillfireindividualsonlyonemonthbefore
theyturnintohigherwagelevelortheywillreplaceworkerswhentheyfindthe
substitute.However,fromthesimpleobservationofthedatathemotivationmay
beweakoritmayhappenindifferentperiod.Moreover,thereisnosignificant
changefromtheperspectiveofmacro-economygiventhecurrentdata
generatingprocess.Mywholesamplesareinarecessionaryperiod.AllofthoseI
describedabovemakesurethatthereisnochangeindemandsideacrossthe
cut-offpoint.
Increasingminimumwagewillleadtotwodiscontinuities.Firstly,higherreturns
leadtohighersearchintensity.Undersameconditions,thenumberofvacancyin
labormarketremainsconstant,leadingtohighermatchingrate.Secondly,across
thecut-offpointsearchintensityofeachskillgroupwillincrease,leadingto
crowdingouteffectfromhigherskilledworkerstolowerskilledworkers,
reducingtheopportunityforthatgroup.Thecrowdingouteffectwillmostly
happeninrecession,sincetheincreaseinlaborsupplycouldnottransforminto
employmentexpectedly.Higherskilledworkersmayhavehigheremployment
opportunitycomparedtolowerskilledworkers.Thefactthattheyarecompeting
forthesamejobonlymakesitharderforlowerskilledworkers.Therefore,the
overalleffectofincreasingminimumwageonindividualswithlowerlevelof
educationbasedonthisstrategymaycomefromthecombinedeffectsofincrease
insearchintensityandcrowdingouteffectcomingfromindividualswithhigher
levelofeducation.However,itisnoteasytoidentifyinpractice.Comparing
employmentopportunityoverqualificationsisambiguouswhenhigherskilled
workermayfindajobuncoveredbyminimumwage.Oneobviousargumentis
individualwithlesseducationwillbemoreaffectedbyminimumwage.Givenmy
results,minimumwagewillmostlyaffectindividualswithqualificationbelow
A-levels.AboveIdescribedpicturesthemovementofemploymentindifferent
qualifications.Besidesemploymentopportunity,individualsmaychangetheir
choiceaboutworkafterthechangeofreturniftheyhavechoicetochange.
Individualswithhigherlevelofeducationarestilllookingforminimumwage
leveljobnormallytendtofacethischoice.JustlikeIdemonstratedabovein
literaturereview,individualsmaypreferamorepermanentjobdueto
opportunitycostwhentheirreturnisincreased.Crowdingouteffectmaybe
moresignificantintheseresults.
Asforthefirstquestion,mycurrentresultssuggestthatthereisasignificant
positiveeffectofincreaseinminimumwageonindividualswithqualificationof
morethanfiveGCSEsorhighergradesofGCSE,butnotsostrongnegativeeffect
onindividualswithqualificationoflowergradesofGCSE.Moreover,bothyears
ofeducationandnumberofGCSEhasbeenincreasedaftercrossingthecut-off
point,showingthatthereexistcrowdingouteffectonindividualswith
qualificationlowerthanfiveGCSEs.ComparedtoDickensetal(2014),apossible
explanationisduetohigherlocalunemploymentrate,theincreaseinsearch
intensitytransfernegativeeffectonindividualswithlowerlevelofeducation.In
thispartmycontributionistoexaminetheheterogeneouseffectsandexplainthe
laborflowacrossthecut-offpoint.Althoughtheemploymentopportunityis
clearforobservationswithlessthanfiveGCSE,Istilldon’tknowthemagnitude
ofnegativecrowdingouteffectcomingfromhigherlevelofeducation.Crowding
outeffectisexpectedtobeheterogeneousgivendifferentlevelofeducation.
SecondlyIamgoingtoexaminethetypeofjobforemployeesaffectedby
increaseinminimumwage.Notonlyemploymentopportunitiesbutalsothe
typesofjobwillbeaffectedbythechangingofrelativeprice.Putitdifferently,
thechangeoftypeofjobforindividualsacrossthresholdmayhaveclearerimage
forusintermsofhowtheemploymentopportunityisaffected.Iassumethe
motivationofindividualstowardtoajobissimilar.Workersaremorewillingto
findamoreformaljobwhenreturnishigher.Giventhisdatageneratingprocess,
thetotalnumberofmatchedandvacantjobremainsunchanged.Weexpectthe
decreaseinvacancyorthechangeoftypesofjobbetweengroupswithdifferent
qualification.Giventhegloomyeconomyandthepreviousresults,theresults
maypresentcrowdingouteffecttosomeextent.Iftheincreaseinemployment
opportunityofaformaljobforindividualswithhigherlevelofeducationisatthe
expenseofcorrespondingdecreaseinemploymentopportunityforindividuals
withlowerlevelofeducation,thenonehastosuspecttheoverallbenefitsof
increasinginminimumwage.
Boththeemploymentopportunityandtypeofjobwillhelpexplainthe
accumulationofhumancapitaloflowpaidworker.Thatwillhelpexplainthe
statedependenceinthefutureoftheircareer.Differenttypesofjobmayprefer
differentworkers.Boththeeducationandtrainingcanhelpaccumulatethe
humancapital.Forsomestudentsarenotwillingtoobtainmoreeducation,
vocationaltraining,work-relatedtrainingorapprenticeshipmayhelpthemmore
inpractice.Butalowqualifiedtrainingorlowprobabilityofreceivingthose
trainingcanleadtolowerprobabilityofemploymentinthefuture.Thatmaygive
animplicationtostatedependence.Asforthewageandprobabilityofreceiving
jobortrainingatthebeginningofthecareermaydependontheelasticityof
differenttypesofworker.Thatbelongstoclassiceconomicmodel.
ThirdlyIhopetodescribethebehavioroflaborflow.Thestrategyisstillbased
onRD,butthedifferencehereisIusedurationbetweenmonthofjobstartedor
jobendedtomonthofbirthcomparedtothefirstone.Thiswilldescribethe
effectofincreaseinminimumwageonworkerandfirm’sbehavior.Thejob
accessionrateandjobseparationratewouldchangeonthebasisofdistance
betweenworker’sbirthmonthtothemonthofjobstartorjobend.Thefirstdata
generatingprocessdoesn’tincludetheinformationofthebehaviorofbothsides.
Thestockofjobsinlabormarketlargelydeterminedbyproductionprocessof
firms,determinedbyoutputprice,inputpriceandproductiontechnologygiven
theclassicaleconomicmodel.Atcertainpoint,ifweassumebothtechnologyand
outputpriceareholdconstant,thequestionhereiswhetherincreaseininput
pricewillchangethestockoflabororthecharacteristicsoflabor.Toanswerthat
questionweneedtolookatamoredynamicpictureratherthanstaticinwhich
justpicturesthefeaturesoflaborstock,suchasthechangesinjobcharacteristics,
workerscharacteristicsandthepatternoflaborflow.
3.Regressiondiscontinuityregression
3.1FoundationofRD
RDdesignisaquasi-experimentaldesigninwhichtheprobabilityofreceiving
treatmentwillbechangeddiscontinuouslyacrossthethresholdasafunctionof
controlvariables(Hahnetal2001).Itisaincreasinglypopularmethodin
appliedeconometrics(ImbensandLemieux2008).Inthispaper,Iamgoingto
examinetheagediscriminationbasedonsharpdiscontinuitywhichthe
treatmentvariabledependsonasetofobservablevariables.Thereisanother
discontinuitycalledfuzzydiscontinuitywhichthetreatmentvariabledependson
asetofrandomvariablesbuttheprobabilityisknownaroundthethreshold
(Hahnetal2001).Thiseconometricframeworkexploitsthediscriminationfrom
employersbasedonfuzzyregressiondiscontinuitymodel:
𝑌!" = 𝛼 + 𝛽𝑇𝑅𝐸𝐴𝑇!" + 𝛿(𝑎)+ 𝛾𝑋!+𝜀!" (1)
where 𝑌!" isinterestedoutcomevariableforindividualiofagea. 𝑋! arethe
controlvariables.HereTREATisourinterestvariablewhichcapturesthe
employmentprobabilityinducedbydurationtobirthmonth.Itequalstooneif
individualis21yearsold. 𝛿(𝑎) iscalledagefunctionwhichcapturestheeffect
ofage.AkeyassumptioninRDstrategyisthat 𝛿 (𝑎) iscontinuousfunction.
Anotherassumptionisthatthesamplebeforeandafterbirthdayshouldbe
randomlyassigned.Thatmeansthetreatmentvariableistheonlysourceof
discontinuity.
𝛿(𝑎) = 𝑑𝑢𝑟𝑎𝑡𝑖𝑜𝑛 + 𝑑𝑢𝑟𝑎𝑡𝑖𝑜𝑛! + 𝑑𝑢𝑟𝑎𝑡𝑖𝑜𝑛 ∗ 𝑇𝑅𝐸𝐴𝑇 + (𝑑𝑢𝑟𝑎𝑡𝑖𝑜𝑛 ∗ 𝑇𝑅𝐸𝐴𝑇)! (2)
And 𝛽! istheeffectofdiscontinuityinducedbyemployer’sdiscrimination.Itis
difficulttoselectagecontrolfunction.Herelargelyrobusttestinpracticeis
necessary.Byincludingcontrolvariablestominimizetheerrortermweneedto
mimictheparametricform.Undertheparametricframework,theestimates
mightbebiasedduetootherexogeneities.AfterthetestofvalidityofRDdesign,
thecontrolvariablesareusedtodecreasethevariability,wecaneliminatethe
externalitytosomeextents,butthenumberofobservationsisdecreasingaswell.
Thisisthetradeoffbetweenprecisionandbias.
TheessenceofRDistocomparethetreatmentgroupontherighthandsideof
thecut-offpointandcomparisongroupontheleftsideofthepointandthe
controlgroupfrommarginallybelowthresholdisvalidcounterfactualfor
treatmentgroupfrommarginallyabovethreshold(Hahnetal2001).Aroundthe
thresholdthetreatmentstatusisindependentofallvariablesnomatter
observableandunobservablejustlikerandomassignment(Lee2008).
Thevalueofinstrumentcan’taffecttheoutcomeindependently.Justlike
exclusionrestrictiontheinstrumentcanonlyaffectoutcomeinonechannel.
Heretheinstrumentsarethedistancefromthebirthmonth.Putitdifferently,
individualshaveimprecisecontrolofthetreatmentstatus.Inthiscase,the
randomnessofbirthmonthcanguaranteetherandomnessofthedistancefrom
threshold.Theminimumwageisintroducedin1999,thereforeincreaseinwage
isanticipatedbyyoungworkersandemployer.Apotentialbiasisthatthe
anticipationmaychangethebehaviorofbothsidestosomeextent.Sinceifthe
individualscanpartiallycontrolthevaluearoundthreshold,thenthiswillleadto
somebias(Lee2008).Underthenoadministrativecosttheremightnothave
significantbias.
3.2ValiditytestofRD
GraphsareextremelypopularinpracticalworkofRDduetoitstransparency.
However,visualpresentationwouldbeambiguousinsomecases.Various
validitytestsareneededinthiscase.
ManyideashavebeenproposedwhenitcomestoexaminethevalidityofRD.
Firstlyoneshouldexamineifthetwogroupsarerandomlyassignedby
examiningthecovariatesbalancebeforetheregressions.Thecovariatescan’tbe
influencedbytreatmentsincethosearedeterminedpriortotheassignment
variableandtreatmentvariable(LeeandLemieux2009).Putitdifferently,
variablesintwogroupsshouldbeirrelevanttothetreatmentstatusexceptfor
outcomevariables.Ifthecovariatesshowreasonablefeaturesaroundthecut-off
point,thenitimpliesthattreatmentgroupandcontrolgrouparesimilartosome
extents.
Secondly,onecantestthegoodnessoftheparametricmodeltocalculatethe
residualandexaminethefeaturesoftheresidual(LeeandLemieux2009).
Thirdly,onecanapplyacomparisontestinthecircumstancewithouttreatment
effect.
4Dataandstatistics
ThespeciallicenseofLaborForceSurveycontainsmonthofbirthwhichisused
tocalculatethedistancefrommonthofsurveytomonthofbirth.Itisfiveyears
from2008to2012andtheminimumwageofapprenticewasintroducedin2010.
Thesampleisrestrictedtoindividualsagedfrom16to30ofthosewhoare
employed.IntheUK,theminimumageforworkingis16yearsoldwith
completingcompulsoryschooling.Theminimumwageisdividedintothreeage
bands,16-17,18-21andabove21.Employersalwayswanttorecruitproductive
workerwithgoodexperiences.Thenitgiveslittlespaceforyoungworkerssince
theyareyoungandlackexperiences.Shannon(2011)arguesthatabolishmentof
minimumwagewillsignificantlydecreasetheemploymentfor15-16yearsold
workersinCanadabasedonDID.Bydifferentiatingtheminimumwage,itwill
giveemployersmotivetohireandtrainyoungworkers.
BeforeOct2010,theincreaseinminimumwageistargetedin22yearsold,but
theageischangedinto21after2010.Thesamplesinthispaperareindividuals
whoare20,21and22yearsold.A-levelgraduatesmayalsofindajobinthe
rangeofminimumwage.Thentheremightbenon-negligibleeffecton
employmentopportunityofindividualswithlowerlevelofeducation.Therefore,
insteadoffocusingon18yearsoldthreshold,Iamgoingtolookfortheeffectof
increaseinminimumwageonemploymentopportunityofindividualswhoare
turninginto21yearsold.Ialsodropindividualswhoarestillinschool.The
datasetincludemonthofbirthwhichcanbeusedtocalculatethedistance
betweenmonthofsurveyto21yearsold.Aftercleaningthedata,itincludes
individualswhoarejustpassing20yearsoldandverycloseto22yearsold.
Thereare22monthsaltogether.
5Results
5.1Employmentopportunities
Traditionallyindividualswithlowerlevelofeducationareexpectedtobemore
affectedbyincreaseinminimumwage.Althoughindividualswithmoreyearsof
educationmaystillfindajobwhichispaidinminimumwage,inmyresultsthe
employmentopportunityofindividualswithA-levelsarenotlargelyaffectedby
minimumwage.However,theytendtofindamorepermanentjobafterincrease
inreturns.Theresultsfocusonallsamplesregardlesstheirsex,mostlydueto
limitedsamplesize.Theinterestvariableisthedummyofcut-offpoint,which
willshowthecausaleffectofincreaseinminimumwageonemployment
opportunity.Eachregressionincludes11monthseithersideofthe21stbirthday.
Inordertobalancebetweenexogeneityandefficiency,Iexaminethe
discontinuityindifferentperiodforeachregressionandadddifferent
polynomialtermsasagefunction.
Graph1describestheemploymentrategivendifferentqualificationsbydifferent
distancefrommonthofsurveytomonthofbirth.Thegraphofupperleftisthe
employmentrateofindividualswithqualificationlowerthanGCSE.Upperright
andlowerleftistheemploymentrateofindividualswithlowerthanfiveGCSEs
andmorethanfiveGCSEs.Thelastisforindividualswhosehighestqualification
isA-level.Fromthesimplepatternofemploymentrateindifferentperiod,there
isnoclearevidenceintermsoftherelationbetweenminimumwageand
employmentopportunityforindividualswithanyqualificationsexceptfor
individualswithmorethanfiveGCSEs.Fromthelowerleftgraph,the
employmentrateofpositiveperiodisevidentlylargerthanthelefthandside.
Thatmayimplyincreaseinminimumwagemayhavelargereffectonthose
workers.However,thosegroupswhoarenotaffectedbyminimumwagemay
notcomefromthesamereasons.ObviouslyA-levelstudentstendtohavebetter
chancetogetajobcomparedwithindividualswithlesseducation.
<Graph1Here>
Table1showstheProbitregressionresultsofindividualswithqualification
lowerthanGCSEandGCSEgivendifferentperiodandpolynomialtermsfor
checkingtherobustness.Itsuggeststhatincreaseinminimumwagedoesn’t
incuranychangetoemploymentopportunitiesforthesetwogroupsofpeople.
IndividualsbelowGCSEareveryambiguoussincethequalificationsarevery
diverse.AsIdemonstratebefore,thediscontinuityaroundcut-offpointisa
compositioneffect,combiningtheeffectofincreaseinsearchintensityandlabor
demandduetohigherlocalunemploymentrateinarecessionaryperiod.
<Table1Here>
Table2focusesontheeffectamongindividualswithGCSEastheirhighest
qualification.IndividualswithmorethanfiveGCSEshavemoreemployment
opportunityontherighthandsideofthecut-offpoint,butthereisnosignificant
effectonindividualswithlessthanfiveGCSEs.Itsuggeststhatincreasein
minimumwagewillleadmoreindividualswithmoreGCSEsintoemployment.
Thereisasignificantdifferencebetweenindividualswithhighernumberof
GCSEsandlowernumberofGCSEs.Themotivationoftwogroupsofobservation
willingtofindajobisidentical.Onemaywonderifthereexistscrowdingout
effectcomingfromobservationswithhigherqualifications.
<Table2Here>
Thegraph2picturestheemploymentprobabilitygivendifferentperiodsfor
individualswithhighernumberandgradesofGCSEanditiscalculatedbythe
meanofindividual’semploymentprobabilityineachperiod.Thefirstgraphis
theemploymentopportunityofindividualswithfiveofmoreGCSEs.Thesecond
graphistheemploymentopportunityofindividualswithGCSEofA-Cgrades.
Acrossthethreshold,thereisaclearjumpabout5%causedbytheincreasein
minimumwage.
<Graph2Here>
Thegraph3showstheemploymentprobabilityofindividualswithlower
numberandgradesofGCSE.Theevidenceofindividualswithlowerlevelof
educationisnotasstrongashigherlevelofeducation.Theeffecttendstobe
negativeforthisgroupandthejumpisalsoclearforindividualswithlower
gradesofGCSE.AsIdemonstratedabove,theeffectisacompositioneffectof
increaseinminimumwageandcrowdingouteffect.
<Graph3Here>
Table3usesanothermethodtotestifytheresultsagain.LFSincludesthe
numberofGCSEsheldandgradesofGCSEsaswell.Individualswithhigher
gradesofGCSEmaystillgivethemmoreedgetogainmoreemployment
opportunities.TheresultsshowthatindividualswithlowergradesofGCSEhave
loweremploymentopportunityafterincreaseinminimumwage.Sincethe
increaseinminimumwagewillonlyincurpositiveeffectonlaborsupplyandI
assumethatthereisnosignificanteffectfromlabordemand,itisnaturaltothink
thereisacrowdingouteffectfromindividualswithhigherorbetter
qualifications.
<Table3Here>
Table4givesestimatesofthechangeintermsofyearsofeducationand
proportionofhighervolumeGCSEs.Itshowscrowdingouteffectdirectly.Inthe
firstpartofresults,itistheaverageeducationofworkerswhoareemployed
givendifferentperiods.Acrossthecut-offpoint,theaverageeducationrisesup
0.3year.Inthesecondpartofresults,itsuggeststhattherearemoreindividuals
withqualificationhigherthanfiveGCSEscomparedtothelefthandsideof
cut-offpoint.
<Table4Here>
5.2Whichjob?
TheemploymentopportunitiesIdiscussedaboveafterincreasingminimum
wagewillpossiblyreflecttheworker’sattitudeintermsoffindingajobandthe
competitionacrossqualifications.Butthetypeofjobortheattitudetowardto
thejobisambiguous.Thetypeofjobhassignificantinfluenceontheirreturnand
stability,aswellastheaccumulationofhumancapital.Investigatingthetypeof
jobwilldeepentheunderstandingtheemploymentopportunitiesacross
differentgroups.Individualswillfaceopportunitycostwhentheydecidetofind
amore“formal”job.Theedgemightbedifferentgivendifferentgroupsorthey
mightbesimilar.Sotheimportancehereistoinvestigateifindividualstendto
findapermanentjobwhenthereturnishigherandwhethertheyfinda
permanentjobiftheywantedto.Atthebeginning,Iexaminetheemploymentof
findingafull-timejob.Butafull-timejobcanbeatemporaryaswellanda
permanentpositioncouldbeapart-timejobeither.So,Icallajobthatisboth
full-timeandpermanentagood“Job”.The“Job”shouldbemoreformaland
advancedsometime.Thejobshouldownsomegoodcharacteristics,suchas
higherreturn,higherstability,moreon-the-jobtrainingandsoon.
Graph4istheproportionofindividualinafull-timejob.Thesub-panelsgraphs
identifydifferentgroupsofpeople,justlikeGraph1.AfteraglanceoftheGraph4,
individualshavingqualificationslessthanGCSEandA-leveldon’thave
significantdifferenceacrosscut-offpoint.Butfromindividualswithlowerand
highernumberofGCSE,thereisacleartrendforthosegroups.Individualswith
highernumberofGCSEtendtofindafull-timejobafterincreaseminimumwage.
Liketheresultsofemploymentopportunities,theproportionofindividualswith
lessnumberofGCSEsfindingafull-timejobdecreasesaftercut-offpoint.Graph
5istheproportionofindividualhavinga“job”.Thepatternisquitesimilarto
Graph4.
<Graph4Here>
<Graph5Here>
FromTable5to9Ipresenttheresultsofemploymentopportunitiesindifferent
typesofjobonthebasisoflevelofeducation.Thereismoreevidencefor
individualswithhigherlevelofeducationfindingamoreformaljobcompared
withindividualswithlowerlevelofeducation.TogetherwithGraph4and5,I
concludethatindividualswithhigherlevelofeducationtendtofindamore
formaljobafterincreaseinminimumwage.However,thereisnosignificant
increaseofproportionofformaljobforindividualswithlowerlevelofeducation.
GiventheassumptionIdescribedabove,differenttypesofworkerhavesimilar
motivationtowardtoamoreformaljob.Theresultsofindividualswithlower
levelofeducationcouldbeexplainedbyacompositioneffect,combingtheeffects
ofincreaseinsearchintensityandcrowdingouteffect.
<Table5Here>
<Table6Here>
<Table7Here>
<Table8Here>
<Table9Here>
6Conclusions
Inthefirstpartofthepaper,Iexaminetheemploymenteffectofincreasein
minimumwagefordifferentgroups.Literaturemainlyfocusesonthe
introductionofminimumwage.Intheirstudies,thechangeinemployment
probabilityisfoundtobemainlycausedbothbyemployersandemployees.
Commonlytheresultssuggestthatthereisnosignificantnegativeeffectonlabor
market.
Inthispaper,Iexaminetheeffectofage-dependentminimumwageonlabor
supply.Afterseveralyearsofintroductionofminimumwage,employershave
alreadyreorganizedtheproductionprocess.Acrossthethreshold,wecan
observetheeffectofincreasingminimumwageonthemotivationofindividuals
findingajob.
Theresultsfirstlysuggestthatthereisnosignificanteffectofanincreasein
minimumwageontheemploymentprobabilityofindividualscoveredby
minimumwage.Thismightbeduetoacompositioneffect,combiningthe
positiveeffectofincreaseinmotivationofworkingandthenegativecrowding
outeffectcomingfromhigherlevelofeducation.Individualswithhighernumber
orgradesofGCSEhavehigherprobabilityofbeinginemployment.Andthe
resultsofindividualswithlowernumberofgradesofGCSEsuggestthatthereis
amodestnegativeeffectandtherearenosignificantresultsforindividuals
belowGCSE.Inordertoexaminethecrowdingouteffect,Iexaminetheaverage
levelofeducationandtheproportionofhighernumberofGCSEsacrossthe
cut-offpoint.Theresultsshowthatbothnumbersincreaseacrossthethreshold.
Theimplicationofthispaperisthatweshouldnotneglectthepotentialnegative
effectofincreaseinminimumwage,especiallyinarecessionaryperiod.Duetoa
tightlabormarket,theincreasingminimumwagewillnotonlyincreasethe
averageemploymentbutalsomayberesultinmoreovereducatedworkersin
labormarket.Theminimumwagepolicyshouldbemoreflexibleonthebasisof
tightnessoflabormarket.
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Tablesandgraphs
Graph1.Employmentratefordifferentqualifications
Notes:Thevariable“lessthanGCSE”includesindividualswhosehighestqualificationislower
thanGCSEaccordingtovariable'HIQUAL'inLFS.LowernumberofGCSEincludesindividuals
whosehighestqualificationisGCSEandholdlessthan5GCSEs.HighernumberofGCSEincludes
individualswhosehighestqualificationisGCSEandhold5ormorethan5GCSEs.
Source,LFS
.6.6
5.7
.75
Per
cent
age
of e
mpl
oym
ent
-10 -5 0 5 10dur
Less than GCSE
.65
.7.7
5.8
.85
Per
cent
age
of e
mpl
oym
ent
-10 -5 0 5 10dur
Lower number of GCSE
.75
.8.8
5.9
.95
Per
cent
age
of e
mpl
oym
ent
-10 -5 0 5 10dur
Higher number of GCSE.7
.8.9
1
Per
cent
age
of e
mpl
oym
ent
-10 -5 0 5 10dur
A-level
Table1.EffectofincreasingminimumwageonindividualswithGCSEandbelow
GCSEqualification
Being
employed
Employ(lessthanGCSE) Employ(GCSE)
Polynomial
terms
Windowlength Windowlength
22months 12months 4months 22months 12months 4months
Constant 0.036
[0.044]
0.023
[0.060]
0.001
[0.107]
0.100
[0.047]
0.037
[0.064]
0.035
[0.113]
Linear 0.001
[0.095]
-0.092
[0.138]
0.046
[0.100]
0.057
[0.145]
Quadratic -0.077
[0.163]
0.180
[0.268]
-0.056
[0.172]
0.396
[0.286]
Cubic 0.068
[0.264]
0.195
[0.540]
0.464*
[0.277]
1.10*
[0.570]
Observation 3613 1960 638 3602 1950 669
Notes:Thedependentvariableiswhetherindividualisinemployment.Thecategoryoflessthan
GCSEincludesindividualswithqualificationlowerthanGCSEaccordingtovariableof“HIQUAL”in
LFSandGCSEincludesallindividualswhosehighestqualificationisGCSE.Theresultsarebasedon
differentpolynomialtermsandwindowlength.Controlvariablesarelocalunemployment,dummy
fordisable,andyears.(*)significantat10%;*significantat5%;**significantat1%;***significantat
0.1%respectively
Table2.Effectofincreasingminimumwageonindividualswith
lessormorethanfiveGCSEs
Being
employed
Employ(5-GCSEs) Employ(5+GCSEs)
Polynomial
terms
Windowlength Windowlength
22months 12months 4months 22months 12months 4months
Constant 0.011
[0.058]
-0.068
[0.080]
-0.148
[0.152]
0.283***
[0.084]
0.252**
[0.115]
0.353*
[0.198]
Linear -0.084
[0.124]
-0.137
[0.184]
0.328*
[0.176]
0.448*
[0.256]
Quadratic -0.250
[0.218]
0.438
[0.370]
0.281
[0.292]
0.207
[0.471]
Cubic 0.345
[0.352]
1.02
[0.722]
0.594
[0.462]
1.15
[1.01]
Observation 2224 1192 388 1378 758 281
Notes:Thedependentvariableiswhetherindividualisinemployment.Thecategoryof5-GCSE
includesindividualswithlessthan5GCSEand5+GCSEincludesindividualswith5ormorethan
5GCSE.Theresultsarebasedondifferentpolynomialtermsandwindowlength.Control
variablesarelocalunemployment,dummyfordisable,andyears.(*)significantat10%;
*significantat5%;**significantat1%;***significantat0.1%respectively.
Table3..EffectofincreasingminimumwageonindividualswithGCSEofA-Cand
GCSEofD-G
Being
employed
Employ(D-GGCSE) Employ(A-CGCSE)
Polynomial
terms
Windowlength Windowlength
22months 12months 4months 22months 12months 4months
Constant -0.054
[0.101]
-0.297**
[0.142]
-0.434*
[0.257]
0.151***
[0.054]
0.130*
[0.074]
0.140
[0.131]
Linear -0.344
[0.211]
-0.560*
[0.312]
0.192*
[0.116]
0.255
[0.168]
Quadratic -0.606*
[0.367]
1.16*
[0.615]
0.131
[0.199]
0.353
[0.332]
Cubic 0.384
[0.581]
0.156
[1.23]
0.521
[0.322]
1.34**
[0.666]
Observation 761 405 119 2841 1545 524
Notes:Thedependentvariableiswhetherindividualisinemployment.Theresultsarebasedon
differentpolynomialtermsandwindowlength.Controlvariablesarelocalunemployment,
dummyfordisable,andyears.(*)significantat10%;*significantat5%;**significantat1%;
***significantat0.1%respectively.
Table4.Crowdingouteffect
Dependent
variable
Yearofeducation ProportionofhigherthanfiveGCSEs
Polynomial
terms
Windowlength Windowlength
22months 12months 4months 22months 12months 4months
Constant 0.468***
[0.025]
0.292***
[0.035]
0.129**
[0.062]
0.123***
[0.032]
0.10**
[0.044]
0.185**
[0.086]
Linear 0.031
[0.056]
0.026
[0.080]
0.390**
[0.196]
0.075
[0.070]
0.159
[0.102]
Quadratic 0.063
[0.095]
0.141
[0.154]
0.193
[0.114]
0.195
[0.160]
Cubic 0.063
[0.153]
0.621**
[0.312]
0.214
[0.151]
0.029
[0.194]
Observation 18129 9844 3305 6370 3485 1214
Notes:Thedependentvariablearethefulltimeofyearsofeducationandifindividualshold5or
morethan5GCSE.Theresultsarebasedondifferentpolynomialtermsandwindowlength.
Controlvariablesarelocalunemployment,dummyfordisable,andyears.(*)significantat10%;
*significantat5%;**significantat1%;***significantat0.1%respectively.
Graph2.Estimatedprobabilityofemploymentforhighergradesornumbersof
GCSE
Notes:Thegraphplotstheestimatedaverageprobabilityofemploymentratewhichiscalculated
byaveragingindividual’sestimatedemploymentprobabilityindifferentperiod.
Source,LFS
.8.8
2.8
4.8
6.8
8
Pro
babi
lity
of b
eing
em
ploy
men
t
-10 -5 0 5 10dur
Higher number of GCSE
.76
.78
.8.8
2.8
4
Pro
babi
lity
of b
eing
em
ploy
men
t
-10 -5 0 5 10dur
Higher grades of GCSE
Graph3.Estimatedprobabilityofemploymentforlowergradesornumbersof
GCSE
Notes:Thegraphplotstheestimatedaverageprobabilityofemploymentratewhichiscalculated
byaveragingindividual’sestimatedemploymentprobabilityindifferentperiod.
Source,LFS
.7.7
1.7
2.7
3.7
4
Pro
babi
lity
of b
eing
em
ploy
men
t
-10 -5 0 5 10dur
Lower number of GCSE
.65
.7.7
5.8
Pro
babi
lity
of b
eing
em
ploy
men
t
-10 -5 0 5 10dur
Lower grades of GCSE
Graph4.Employmentrateforindividualswithafull-timejob
Notes:Thegraphplotstheemploymentrateoffull-timejob.Thevariable“lessthanGCSE”
includesindividualswhosehighestqualificationislowerthanGCSEaccordingtovariable
'HIQUAL'inLFS.LowernumberofGCSEincludesindividualswhosehighestqualificationisGCSE
andholdlessthan5GCSEs.HighernumberofGCSEincludesindividualswhosehighest
qualificationisGCSEandhold5ormorethan5GCSEs.
Source,LFS
.31
.32
.33
.34
.35
.36
Per
cent
age
of fu
ll-tim
e jo
b
-10 -5 0 5 10dur
Less than GCSE
.32
.34
.36
.38
.4
Per
cent
age
of fu
ll-tim
e jo
b
-10 -5 0 5 10dur
Lower number of GCSE.3
6.3
8.4
.42
.44
Per
cent
age
of fu
ll-tim
e jo
b
-10 -5 0 5 10dur
Higher number of GCSE
.35
.4.4
5
Per
cent
age
of fu
ll-tim
e jo
b
-10 -5 0 5 10dur
A-level
Graph5.Employmentrateforindividualswitha“formal”job
Notes:Thegraphplotstheemploymentrateofbothfull-timeandpermanentjob.Thevariable
“lessthanGCSE”includesindividualswhosehighestqualificationislowerthanGCSEaccordingto
variable'HIQUAL'inLFS.LowernumberofGCSEincludesindividualswhosehighestqualification
isGCSEandholdlessthan5GCSEs.HighernumberofGCSEincludesindividualswhosehighest
qualificationisGCSEandhold5ormorethan5GCSEs.
Source,LFS
.31
.32
.33
.34
.35
.36
Per
cent
age
of fu
ll-tim
e jo
b
-10 -5 0 5 10dur
Less than GCSE
.32
.34
.36
.38
.4
Per
cent
age
of fu
ll-tim
e jo
b
-10 -5 0 5 10dur
Lower number of GCSE.3
6.3
8.4
.42
.44
Per
cent
age
of fu
ll-tim
e jo
b
-10 -5 0 5 10dur
Higher number of GCSE
.35
.4.4
5
Per
cent
age
of fu
ll-tim
e jo
b
-10 -5 0 5 10dur
A-level
Table5.Effectofincreasingminimumwageonjobtypeforindividualswithless
thanGCSE
Dependent
variable
Full(lessthanGCSE) Job(lessthanGCSE)
Polynomial
terms
Windowlength Windowlength
22months 12months 4months 22months 12months 4months
Constant 0.055
[0.042]
0.042
[0.058]
0.037
[0.102]
0.057
[0.042]
0.050
[0.058]
0.053
[0.102]
Linear 0.024
[0.091]
-0.033
[0.132]
-0.192
[0.326]
0.050
[0.091]
0.017
[0.132]
-0.197
[0.326]
Quadratic -0.039
[0.155]
0.082
[0.256]
0.002
[0.155]
0.041
[0.256]
Cubic 0.019
[0.251]
-0.060
[0.513]
0.023
[0.251]
-0.037
[0.514]
Observation 3613 1960 638 3613 1960 638
Notes:Thedependentvariableiswhetherindividualisinfull-timejoborbothfull-timeand
permanentjob.Theresultsarebasedondifferentpolynomialtermsandwindowlength.Control
variablesarelocalunemployment,dummyfordisable,andyears.(*)significantat10%;
*significantat5%;**significantat1%;***significantat0.1%respectively.
Table6.Effectofincreasingminimumwageonindividual’schoiceofjobtype:
D-GGCSE
Dependent
variable
Full(D-GGCSE) Job(D-GGCSE)
Polynomial
terms
Windowlength Windowlength
22months 12months 4months 22months 12months 4months
Constant 0.015
[0.094]
-0.114
[0.387]
-0.112
[0.237]
0.030
[0.094]
-0.091
[0.132]
0.063
[0.246]
Linear -0.126
[0.199]
-0.269
[0.291]
0.739
[0.806]
-0.025
[0.197]
0.038
[0.290]
1.06
[0.829]
Quadratic -0.473
[0.338]
0.195
[0.565]
-0.127
[0.331]
0.347
[0.566]
Cubic 0.168
[0.054]
-0.544
[1.147]
0.485
[0.540]
-0.387
[1.143]
Observation 761 405 119 761 405 119
Notes:Thedependentvariableiswhetherindividualisinfull-timejoborbothfull-timeand
permanentjob.Theresultsarebasedondifferentpolynomialtermsandwindowlength.Control
variablesarelocalunemployment,dummyfordisable,andyears.(*)significantat10%;
*significantat5%;**significantat1%;***significantat0.1%respectively.
Table7.Effectofincreasingminimumwageonindividual’schoiceofjobtype:
5-GCSE
Dependent
variable
Full(5-GCSE) Job(5-GCSE)
Polynomial
terms
Windowlength Windowlength
22months 12months 4months 22months 12months 4months
Constant 0.025
[0.054]
0.019
[0.075]
0.043
[0.139]
0.031
[0.054]
0.050
[0.075]
0.094
[0.137]
Linear 0.066
[0.118]
0.017
[0.176]
0.618
[0.459]
0.138
[0.118]
0.150
[0.175]
0.754*
[0.451]
Quadratic -0.114
[0.206]
0.242
[0.348]
0.018
[0.203]
0.294
[0.345]
Cubic 0.237
[0.336]
0.80
[0.691]
0.416
[0.331]
0.901
[0.686]
Observation 2224 1192 388 2224 1192 388
Notes:Thedependentvariableiswhetherindividualisinfull-timejoborbothfull-timeand
permanentjob.“5-”includesindividualswithlessthan5GCSEs.Theresultsarebasedon
differentpolynomialtermsandwindowlength.Controlvariablesarelocalunemployment,
dummyfordisable,andyears.(*)significantat10%;*significantat5%;**significantat1%;
***significantat0.1%respectively.
Table8.Effectofincreasingminimumwageonindividual’schoiceofjobtype:
A-CGCSE
Dependent
variable
Full(A-CGCSE) Job(A-CGCSE)
Polynomial
terms
Windowlength Windowlength
22months 12months 4months 22months 12months 4months
Constant 0.169***
[0.048]
0.164**
[0.068]
0.156
[0.118]
0.166***
[0.048]
0.180**
[0.066]
0.116
[0.115]
Linear 0.193*
[0.104]
0.192
[0.152]
0.840**
[0.393]
0.225**
[0.104]
0.180
[0.151]
0.933**
[0.383]
Quadratic 0.087
[0.179]
0.460
[0.297]
0.059
[0.177]
0.343
[0.294]
Cubic 0.575**
[0.291]
0.825
[0.602]
0.505*
[0.288]
0.937
[0.594]
Observation 2841 1545 524 2841 1545 524
Notes:Thedependentvariableiswhetherindividualisinfull-timejoborbothfull-timeand
permanentjob.Theresultsarebasedondifferentpolynomialtermsandwindowlength.Control
variablesarelocalunemployment,dummyfordisable,andyears.(*)significantat10%;
*significantat5%;**significantat1%;***significantat0.1%respectively.
Table9.Effectofincreasingminimumwageonindividual’schoiceofjobtype:
5+GCSE
Dependent
variable
Full(5+GCSE) Job(5+GCSE)
Polynomial
terms
Windowlength Windowlength
22months 12months 4months 22months 12months 4months
Constant 0.297***
[0.071]
0.225**
[0.096]
0.250
[0.163]
0.292***
[0.071]
0.229**
[0.094]
0.188
[0.158]
Linear 0.202
[0.149]
0.211
[0.211]
0.582
[0.535]
0.209
[0.149]
0.167
[0.209]
0.608
[0.526]
Quadratic 0.085
[0.249]
0.492
[0.405]
0.020
[0.247]
0.287
[0.401]
Cubic 0.074*
[0.404]
0.034
[0.839]
0.552
[0.402]
0.267
[0.830]
Observation 1378 758 281 1378 758 281
Notes:Thedependentvariableiswhetherindividualisinfull-timejoborbothfull-timeand
permanentjob.“5+”includesindividualswith5ormorethan5GCSEs.Theresultsarebasedon
differentpolynomialtermsandwindowlength.Controlvariablesarelocalunemployment,
dummyfordisable,andyears.(*)significantat10%;*significantat5%;**significantat1%;
***significantat0.1%respectively.
