Hiring behaviour and the National Minimum Wage

The report analyses the effects of the UK National Minimum Wage (NMW) on firms’ hiring behaviour, drawing on data scraped weekly from two online job ad services: findajob.gov.uk, which contains ads for any job in the public or private sector (collected for the period July 2020-August 2021), and findapprentice.gov.uk, which contains ads for apprenticeships only (collected for May 2019-August 2021). In the first section of the analysis we examine whether the changes in the UK minimum wage in 2020 and 2021 affected the number of ads posted. We use a technique pioneered by Cengiz et al. (2019) with employment data in the US, which involves comparing the loss of jobs immediately below the new minimum wage with the gain in jobs immediately above it. We adapt this methodology to the UK setting by exploiting variation in the real level of the minimum wage across local authorities. A drawback of this approach is that it is unable to disentangle changes caused by the minimum wage from national shifts in hiring at specific points in the nominal wage distribution that are unrelated to the minimum wage. This may have been a problem during the period analysed, as the UK economy recovered from the effects of the Covid-19 pandemic and resultant lockdowns. We find that the increase in the National Living Wage in April 2021 raised the number of general jobs that were advertised, but by an insignificant amount. In contrast, the upratings of the Apprentice Rate in 2020 and 2021 were associated with large and significant increases in the number of apprenticeships advertised. The elasticity of the number of ads with respect to the minimum wage was 3.7 in 2020 and 5.1 in 2021. In the second section we examine how the minimum wage affected the number of job ads with specific characteristics. The National Living Wage appeared to raise the quality of the jobs that were advertised, with ads featuring the terms “flexible”, “training” or “experience” in the job description becoming relatively more frequent after the 2021 uprating, even though the total number of ads was unaffected. However, depending on the specification used, not all these effects are statistically significant.
In the third section we examine whether the minimum wage uprating in 2021 had an effect on jobs that paid above the minimum wage. We find that the minimum wage increase in April 2021 is associated with an increase in the wages offered for jobs that are higher up the wage distribution, indicative of firms attempting to preserve inherent wage structures. We find that a 10 percentage point increase in the proportion of job offers that specify the minimum wage is associated with roughly half a percent increase in the wages offered for such a job title after the minimum wage increase, while a 10 percentage point increase in the proportion of all other jobs that specify the minimum wage is also associated with a 0.5 percent increase in the wages offered for a given job title. We focus on the care sector as it employs a substantial fraction of minimum wage workers and found a very similar result to our estimates that used all sectors. In the final section we estimate the Beveridge curve, combining the job ads data with data from the Labour Force Survey. The estimates show that from September-October 2020 there was an increase in the amount of unemployment relative to the number of job vacancies, consistent with an increase in mismatches between employers and workers (or “frictions”) in the labour market. However, after October 2020, the curve returned to its initial position. We also found that labour market frictions were higher in London, the North East, Wales and Northern Ireland and in service and elementary occupations.