Understanding Official Data Sources, Low Pay Commission

Analysis of official data sources and earnings data, rounding behaviour and measurement error of earnings in microdata, and imputation of earnings using the Labour Force Survey.

We made various recommendations to the Low Pay Commission including that the minimum wage should be set at a rounded value. On the 12th of March 2014 the Low Pay Commission released its annual report to the UK government on the National Minimum Wage (NMW) with its recommendations for NMW rates from October 2014. The recommended NMW from October 2014 was £6.50 a rounded value. The Low Pay Commissions annual report 2014 makes countless direct references to our report and our recommendations on rounding behaviour, linking it to their 2014 NMW decision. For example, "Fry and Ritchie (2012a and 2012b) and Dawson, Ritchie and Whittard (2014) suggested that employers, particularly those in small firms, use focal points to set wages. The new recommended rate is a focal point and currently just under 200,000 workers are paid at this wage” (The National Minimum Wage, Low Pay Commission Report, 2014). On the 1st of October 2015 the new NMW rate was introduced at £6.70. The low Pay Commissions annual report 2015 again makes reference to our report and our recommendations on rounding behaviour, linking it directly to the new rate. For example, “Coverage might also be affected by the NMW for adults being again set at a round number this year. Fry and Ritchie (2012a and 2012b) and Dawson, Ritchie and Whittard (2014) suggested that employers, particularly those in small firms, use focal points or round numbers to set wages.” (The National Minimum Wage, Low Pay Commission Report, 2015). The report also pointed to ways in which the Office for National Statistics (ONS) could improve the reliability of the collection of earnings data; “Rounding was investigated further by analysing the BHPS/Understanding Society. The researchers found that when the pay information was exact (taken from a pay slip) the data were similar to that from ASHE, but that when the data were not ‘exact’, they were more like the LFS. Thus, there appeared to be lessons for ONS to improve the accuracy of data collection” (The National Minimum Wage, Low Pay Commission Report, 2014)