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Abstract:

CEP discussion paper
Living wages and age discontinuities for low-wage workers
Nikhil Datta and Stephen Machin
September 2021
Paper No' CEPDP1803:
Full Paper (pdf)

Tags: living wages; minimum wages; wages; hours

This paper considers an emerging, highly policy relevant feature of minimum wages, studying what happens when a wage floor significantly higher than a nationally legislated minimum is imposed. The consequences of age-wage discontinuities and wage floors higher than mandated minimum wages are explored in the context of a Living Wage being introduced to a large UK organisation through time. Between 2011 and 2019, the Company was exposed to a Living Wage Rate higher than the statutory National Minimum Wage, which was sequentially introduced into some of its establishments and had the effect of boosting wages and strongly increasing the age-wage discontinuity from age-related pay grades. The analysis finds positive labour supply responses at the age discontinuity before Living Wage treatment, but a fall in hours at the discontinuity following treatment. The Living Wage raised wage costs but did not affect aggregate hours, showing a within-establishment reallocation of hours by age arising from differential eligibility to be paid the Living Wage.