Dickens, Richard Frederick; (1997) Wage Dynamics and Minimum Wages in Britain. Doctoral thesis (Ph.D), UCL (University College London).

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Abstract

After a long period of relative stability, wage differentials in the UK have risen sharply since the late 1970s. Wage inequality is now greater than it was 100 years ago. This increase in cross sectional inequality has been widely documented. The aim of the first part of thesis is to establish the degree to which earnings differences are permanent or transitory and to study the level of mobility of individuals within the earnings distribution. Using data from the New Earnings Survey (1975-1994) and the British Household Panel Survey (1991-1994), I provide an analysis of the dynamics of the earnings process and investigate whether this has changed over time. An examination of the covariance structure of male earnings points to the existence of a permanent component, that increases with age, and a highly persistent transitory component. Both of these components rise over time, each explaining about half of the rise in wage inequality from 1975 to 1994. The investigation into wage mobility suggests considerable persistence in the wage distribution. There is some evidence that mobility has fallen over this time period. The second part of this thesis studies the economic effects of minimum wages in Britain. Using a panel of Wages Council industries I report evidence showing that increases in the minimum wage compress the wage distribution, but there is no evidence of any adverse employment effects. Meyer and Wise (1983a, 1983b) propose a technique for estimating the employment effects of the minimum wage from data on a single cross section of earnings. I show that, at least for Britain, their approach is highly sensitive to key assumptions about the functional form for wages and the impact of the minimum on the wage distribution. Their technique although appealing on an intuitive level does not provide robust results in practice.

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