Where the Minimum Wage Bites Hard: the Introduction of the UK National Minimum Wage to a Low Wage Sector

Between 1993 and April 1999 there was no minimum wage in the UK (except in agriculture). In this paper we study the effects of the introduction of a National Minimum Wage (NMW) in April 1999 on one heavily affected sector, the residential care homes industry. This sector contains a large number of low paid workers and as such is a sector one can view as being very vulnerable to minimum wage legislation. We look at the impact on both wages and employment. Our results suggest that the minimum wage raised the wages of a large number of care homes workers, causing a very big wage compression of the lower end of the wage distribution, thereby strongly reducing wage inequality. There is some evidence of employment and hours reductions after the minimum wage introduction, but there appears to be no effect on home closure.