Economics: Unemployment And Minimum Wage

UNEMPLOYMENT AND MINIMUM WAGE
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Unemployment Rate and Minimum Wage
In economics, the minimum wage tops one of the discussed and studied topics across many countries. This debate has attracted numerous studies and a large number of academic publications providing both the empirical and theoretical research regarding the magnitude of effect and direction. Countries like the United States, France, and Singapore have established constitutional acts that guide the issue of minimum wages in their respective economies. In the U.K., the National Minimum Wage Act was established in 1998 indicating a binding minimum pay across the country and became effective as from 1st April 1999 (Hafner, et al, 2016). However, over the years, there have been various debates about policies that guide rates of minimum wages which continues to vary each year. Therefore, this paper evaluates the impact of the minimum wage on unemployment rates in the country.
A study conducted by RAND Europe (2016) using a meta-analysis approach indicated various impacts of the U.K. national minimum wage (NMW) on employment. The objective of the study was to assess the employment retention effects, which is the probability of remaining at work after increasing the minimum wage. The findings compared an empirical study about the U.K. minimum wage, which was conducted by de Linde Leonard et al. (2014). The study looked at the effects of U.K. wage councils and other minimum wage measures published before 2012. The methodology of the study was meta-regression analysis. ‘Meta-analysis is a systematic review employing a range of statistical methods to synthesis and evaluate specific empirical literature. The meta-regression analysis was designed to analyze empirical research in economics and social sciences’ (Hafner et al., 2016, p.4) The systematic review method applied involved a search for academic literature in the relevant databases, a hand search of literature published by U.K. low pay commission (LPC).
The academic literature was obtained from EBSCO information service databases. Grey literature was obtained from three potentially authoritative sources of similar studies, and all LPC reports were obtained from LPC websites and achieved. The search of relevant materials was sorted using the subject search term ‘minimum wage’, using geographical delimiters and the key words of the study. Data collection was done by extraction of relevant information, estimates, a total number of observations, peer-reviewed journals, and data sets used for specific estimates. Out of this, 22 relevant materials were identified for further analysis out of 2,313 corresponding estimates. Criteria for further analysis were based on regression coefficients, a total number of observations, and standard error. Six studies were excluded as they did not meet these criteria. Based on the employment effect on NMW,241 estimated NMW elasticities were captured (Hafner et al., 2016, p.7-10).
The findings were as follows; based on the employment effects for labour market subgroups, it was realized that part-time employees were adversely affected by the NMW increases than other subgroups, irrespective of when uprating happened. Based on employment retention probabilities, part-time employees experienced larger negative impacts at the introduction of NMW and across all periods except during the great recession. LPC may also consider subgroups specific NMW rates similar to those applied to an employee under 25 years of age. It was also evident that employment retention of young workers was more adversely affected during a great recession than other subgroups. However, based on the report of de Linde Leonard et al. (2014), there were no records of selection bias in the aggregated U.K. NMW literature, no economically significant adverse employment effect, neither on employment and retention probabilities nor hours (Hafner et al., 2016, p.31).
In another study conducted by Brewer et al., (2019) on ‘what do we really know about the employment effects of the U.K.’s national minimum wage?’ concluded that NMW has not had a detrimental effect on employment (2019, p.1). The objective was to re-evaluate the impact of NMW on employment taking into account concerns about LPC, the conduct of policy, and the introduction of the National Living Wage (NLW). A common empirical method involving using DiD-style design was used to estimate the impacts of the NMW on the transition from employment to non-employment. The second approach relied on the geographical delimiters of NMW that arise because they take a single value across the U.K. with varying wage rates. DiD-style design took into consideration previous studies by Stewart (2002), Dolton et al., (2012), and Dolton et al., (2015) and existing literature and found that they “consistently failed to reject the null hypothesis that U.K.’s NMW wage bill has no impact on employment and job retention” (Brewer et al., 2019 p. 3). The findings of this study, as compared to the past literature also failed to find consistent evidence of a statistically significant effect.
However, further analysis using the first empirical approach and preferred specifications in recent works of literature on inference in DiD designs and calculating standard errors to ensure the associated tests have the correct sizes. The results were as follows;95% of confidence intervals were obtained, which included the possibility that a 10% rise in NMW would lower the employment retention rate for NMW by 22%. This result showed that DiD design had low power to re-evaluate a real NMW impact. In terms of geographic variations, the study found out relatively large minimum detectable effects that point to the low power of the design. These findings casted doubt on the consensus that the U.K.’s NMW does not harm employment.
A study by Kabeya et al., (2015) researched the effects of minimum wage on employment and working hours in Western Europe involving the U.K., France, and the Netherlands. In conjunction with data from the unemployment rate, weekly working hours, and minimum wage, the study also deployed other variables such as the GDP growth rate, population growth rate, and net immigration as a percentage of the total population for the above countries. The total sample dataset was 83 in panel dimension since 1980 extracted from the International M...