The Impact of the Minimum Wage in Scotland

The primary rationale for the introduction of the UK national Minimum Wage in April 1999 was to address injustice and inequality in the labour market and in particular to 'protect the most vulnerable from exploitation'. However, it is also a major component in the UK Government's Social Exclusion Policy. For example, its plays a role in 'making work pay' and hence encourages labour market participation.

The impact of the minimum wage will depend on the structure of both pay and employment. Both are known to be different in Scotland, with, relative to England, lower participation rates, and higher proportions of employees in low pay, in unionised workplaces and in the public sector. It is therefore natural to ask whether the impact of the introduction of the minimum wage has had differential effects in Scotland.

The principal objective of this project was to explore how the introduction of the National Minimum Wage has altered the distribution of wages in Scotland. The analysis was based on available data from the Quarterly Labour Force Survey (QLFS) prior to and after the introduction of the minimum wage. These data were analysed using both descriptive and econometric techniques to capture any changes in the wage distribution over the period.

The study found that the introduction of the NMW had a much more substantial impact on the wage distributions of Scotland and the North East of England than it did on the distribution of wages in London. In addition, in Scotland there was relatively more spillover to other wages resulting in a more pervasive effect on the wage distribution than was the case in the North East of England. In Scotland the introduction of the NMW appears to have affected the pay of workers paid well above the NMW.