Efficiency wages and the economic effects of the minimum wage: evidence from a low-wage labour market

Georgiadis, Andreas (2008) Efficiency wages and the economic effects of the minimum wage: evidence from a low-wage labour market. CEPDP (857). London School of Economics and Political Science. Centre for Economic Performance, London, UK. ISBN 9780853282518

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Abstract

We exploit a natural experiment provided by the 1990 introduction of the UK National Minimum Wage (NMW) to investigate the relationship between wages and monitoring and to test for Efficiency Wages considerations in a low-wage sector, the UK residential care homes industry. Our findings seem to support the wage-supervision trade-off prediction of the shirking model, and that employers didn't dissipate minimum wage rents by increasing work intensity or effort requirements on the job. Estimation results suggest that higher wage costs were more than offset by lower monitoring costs, and thus the overall evidence imply that the NMW may have operated as an Efficiency Wage. These findings support Efficiency Wage models used to explain a non-negative employment effect of the Minimum Wage and provide an explanation of recent evidence from the care homes sector that although the wage structure was heavily affected by the NMW introduction, there were moderate employment effects.

Item Type:	Monograph (Discussion Paper)
Official URL:	http://cep.lse.ac.uk
Additional Information:	© 2008 Andreas Georgiadis
Divisions:	Centre for Economic Performance
Subjects:	H Social Sciences > HD Industries. Land use. Labor
JEL classification:	J - Labor and Demographic Economics > J3 - Wages, Compensation, and Labor Costs > J38 - Public Policy J - Labor and Demographic Economics > J3 - Wages, Compensation, and Labor Costs > J31 - Wage Level and Structure; Wage Differentials by Skill, Training, Occupation, etc. J - Labor and Demographic Economics > J4 - Particular Labor Markets > J41 - Contracts: Specific Human Capital, Matching Models, Efficiency Wage Models, and Internal Labor Markets
Date Deposited:	18 Jul 2008 10:04
Last Modified:	15 Sep 2023 23:12
URI:	http://eprints.lse.ac.uk/id/eprint/19628

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