IZA DP No. 4433: Did the National Minimum Wage Affect UK Prices?
published in: Fiscal Studies, 2010, 31 (1), 81-120
One potential channel through which the effects of the minimum wage could be directed is that firms who employ minimum wage workers could pass on any resulting higher labour costs in the form of higher prices. This study looks at the effects of the introduction and subsequent uprating of the minimum wage on the prices of UK goods and services, comparing the prices of goods produced by industries in which UK minimum wage workers make up a substantial share of total costs with the prices of goods and services that make less use of minimum wage labour. Using sectoral-level price data matched to survey data on the share of minimum wage workers in each sector, it is hard to find much evidence of significant price changes in the months that correspond to the uprating of the NMW. However over the longer term, prices in several minimum wage sectors – notably take-away foods, canteen meals, hotel services and domestic services – do appear to have risen significantly faster than prices of non-minimum wage sectors. These effects were particularly significant in the four years immediately after the introduction of the minimum wage.