What is the evidence of the impact of raising pay on poverty?

Rationale

Minimum wages may help to protect individuals from poverty in a number of ways. They can improve incomes through their introduction and uprating, they can also protect incomes in situations (such as recession) where there is pressure on wages. Minimum wages can also provide an incentive for individuals to move into employment, which is associated with a reduced risk of poverty.

Evidence base

There is a sizeable evidence base on the impacts of the National Minimum Wage (NMW) in the UK (and elsewhere). This is generally high quality although suffers from some issues of measurement error, particularly when the LFS wage data are used. Research findings are summarised each year in the Low Pay Commission's report. The evidence covers the effects of NMW on a range of areas including employment, earnings, hours, profits, prices, productivity, and inequality.

Research in the UK has addressed the impact of NMW on employment probabilities (work entry) and employment retention (including Dickens and Draca, 2005; Bryan et al, 2013). The link between minimum wages and poverty has also been examined in the UK and elsewhere using various econometric methods and simulation techniques. Sutherland (2001) examines the impact of tax and benefit policy changes in combination with the introduction of NMW on poverty. Formby et al (2004), working in the US, model how changes in the minimum wage, Earned Income Tax Credit (EITC), and payroll taxes influence the well-being of low-income American families (also Vedder and Gallaway, 2001; Fields and Kanbur, 2005). Knabe and Schoeb (2011) simulate the effects of minimum wages, wage subsides, and combinations of these on the German labour market (also Muller and Steiner, 2008). They argue that wage subsidies are the most favourable from a poverty-reduction perspective. In Canada, Campolieti and Gunderson (2012), using regression and simulation, find that the majority of net gains from minimum wage gains go to those who are non-poor, but that job losses are concentrated on the poor (also Mascella and Teja, 2009 for Ontario).

More recently modelling has attempted to estimate the potential employment effect of the introduction a Living Wage in the UK (Riley, 2013).

Gaps

There is a relatively good international evidence base on the minimum wage and poverty. Are we missing anything that directly studies the link between the minimum wage and poverty in the UK, in particular more recent work?

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