§ Mr. Tony LloydTo ask the Secretary of State for Employment, pursuant to his answer of 2 February,Official Report, column 375, on minimum wage effects, what other assumptions on the restoration of pay differentials besides that given in the note deposited in the Library have been considered; on what evidence they are based; and what would have been the impact of a minimum wage set at half average earnings on each of these assumptions.
§ Mr. NichollsThe estimates produced by my Department of the job losses arising from the introduction of a national minimum wage assumed, on a central estimate, that differentials for those employees earning more than the minimum would be half-restored.
To establish a lower limit for the impact of a national minimum wage on jobs, a second estimate was produced on the basis of there being no restoration of differentials at all. My Department estimates that, in this case, about 100,000 jobs would be lost.
Also a third estimate, to establish an upper limit, was produced on the basis of there being a full restoration of differentials. My Department estimates that, in this case, about 1.4 million jobs would be lost.
Both the assumptions of no restoration and full restoration are implausible.
§ Mr. Tony LloydTo ask the Secretary of State for Employment if he will list(a) each of the research studies and (b) all other sources of evidence which his Department used in determining the assumptions contained in the note placed in the Library entitled "Estimating the Effect of a National Minimum Wage"; and if he will identify separately the evidence and research used to formulate the assumption that differentials are half-restored in percentage terms following the introduction of a national minimum wage.
§ Mr. NichollsThe assumptions made by officials in my Department in constructing the estimate of the effect of a national minimum wage, were derived mainly from the published Treasury paper "The Relationship between Employment and Wages: Empirical Evidence for the United Kingdom" (January 1985) and data from the New Earnings Survey (1989).
The Treasury paper estimates the relationship between employment and real wages in the United Kingdom, and the relationship expected between increases in money 99W wages and real wages given an unchanged nominal framework. The new earnings survey each year indicates the earnings distribution prevailing in the country at a stated time.
Apart from those reviewed in the Treasury paper, other papers studied included:
- From The Dole Queue to the Sweatshop: Minimum Wages and Government Policy—Henry Neuburger (Low Pay Unit, 1984);
- Minimum Wage Fixing—Gerald Starr (ILO 1981);
- On the Employment Effects of Introducing a National Minimum Wage In the UK—Stephen Bazen (University of Kent Working Paper 88/5, 1988);
- Wages Floors in the Clothing Industry 1950–81—Phillip Morgan, Don Paterson, and Robert Barrie (Department of Employment Research Paper No. 52, 1985);
- Low Pay or No Pay?—David Forrest and S.R. Dennison (Institute of Economic Affairs Hobart Paper 101, 1984);
The assumption that differentials are half-restored in percentage terms is a justified central estimate. Similar assumptions are made in some of the work listed above.
§ Mr. Tony LloydTo ask the Secretary of State for Employment what assumptions about the effects of increased productivity and competitiveness as firms switch to higher wage and higher skill strategies were taken into account in the estimates contained in the note placed in the Library entitled "Estimating the Effect of a National Minimum Wage".
§ Mr. NichollsThe estimates, produced by my Department, of the job losses arising from the introduction of a national minimum wage were not based on any explicit assumptions about the effects of higher real wages on productivity, competitiveness, and employers' skill strategies.
However, the estimates utilise results from the Treasury model (published in the Treasury paper "The Relationship between Employment and Wages: Empirical Evidence for the United Kingdom", January 1985), which are based on the past performance of the economy and take into account substitution between labour and capital as their relative prices alter and the consequent effects on productivity and competitiveness.
§ Mr. Tony LloydTo ask the Secretary of State for Employment, pursuant to his answer of 2 February, to the hon. Member for Stretford,Official Report, column 375, what assumptions about increased demand for consumer goods by those receiving higher pay, as a result of the introduction of a statutory minimum wage, have been taken into account in reaching the conclusions on the effects of the introduction of a minimum wage.
§ Mr. NichollsThe estimates, produced by my Department, of the job losses arising from the introduction of a national minimum wage used results from simulations reviewed in the published Treasury paper "The Relationship between Employment and Wages: Empirical Evidence for the United Kingdom" (HM Treasury, January 1985).
These Treasury estimates of the impact of changes in real wages on employment do take account of the effects on consumer demand of changes in real wages, as well as the offsetting effects on company sector demand which arise from corresponding changes in their costs.