The Dynamics of the National Minimum Wage : Transitions between Different Labour Market States

An important policy issue is whether the National Minimum Wage (NMW) introduced in Britain in April 1999, is a stepping stone to higher wages or traps workers in a low-wage - no-wage cycle. In this paper we utilise the longitudinal element of the Labour Force Survey over the period 1999 to 2003 to model transitions between different labour market states - payment at or below the NMW, above the NMW, unemployment and inactivity, using a multinomial logit approach. It appears that for many workers payment at or below the NMW is of relatively short duration and a substantial number move into higher paid jobs