The effect of the minimum wage on hiring behaviour

Over the past decade, minimum wages have become increasingly popular as a policy tool across Western countries, as a method of reducing income inequality and ensuring employers give regular pay increases to their lowest-paid workers.

In April 2022, the National Living Wage (paid to those over 22) rose by 59p (6.6%) meanwhile the apprentice minimum wage rate rose by 11.9%. These are the largest increases in the minimum wage in the UK's history. The PhD project will exploit this exceptional opportunity, using econometric analysis to estimate the relationship between the minimum wage and the hiring behaviour of firms.

The project will use data on job vacancies from job posting websites, including data specific to apprentices, to answer the following questions:
1. What is the effect of a change in the UK minimum wage on the job vacancy rate? How does this differ across geographical regions and sectors?
2. What is the effect of the minimum wage on the number of ads specifying various benefits or restrictions?
3. To what extent does the increase in the minimum wage rate affect the provision of non-wage benefits, such as the quantity and quality of training, provided to apprentices?

The dissertation will be the first study to analyse the effects of the minimum wage using online job ads and it will utilise an original dataset that has significant advantages over traditional survey data. As well as allowing an analysis of the effects of the minimum wage on job vacancy rates, this dataset provides a unique opportunity to examine how employers adjust the total employment package offered to workers, in often subtle ways.

I will use weekly data collected from two online job advertising services using web scraping techniques: findajob.gov.uk, and findapprentice.gov.uk. The former contains adverts for any jobs while the latter is used exclusively to advertise vacancies for apprentices. In addition to standard variables such as the wage rate and the job role, the data scraped will include the exact job description, the number of hours worked, and the precise geographic location of the job.

This novel data set provides a higher level of insight into the impacts of the minimum wage on the labour market than other data sets such as the Labour Force Survey, Annual Survey of Hours and Earnings or the Apprentice Pay Survey.

In doing this I hope the analysis will bridge the gap between economic theory and empirical evidence when it comes to the relationship between minimum wages and employment. Economists have traditionally been wary of minimum wages since theory predicts that they will reduce employment in a competitive labour market. However, the empirical literature examining the effects of the minimum wage on levels of employment is extensive and has culminated in the consensus in the UK that a minimum wage increase has an insignificant or, at the very most, marginal effect on employment. Given this apparent mismatch, this research will focus on other mechanisms through which employers might accommodate the cost increases associated with the minimum wage. In the first chapter, I will analyse the effect of an increase in the minimum wage on the vacancy rate. In the case where search frictions exist, it could be that a higher minimum wage means that firms are more likely to be able to retain and recruit workers, reducing the job vacancy rate. This would help to explain why increases in the minimum wage have apparently negligible, or even positive, effects on employment
levels.

The project will proceed to focus on the effect of minimum wage increases on the provision of non-wage benefits provided to both those with full-time jobs and apprentices. Such benefits could be reduced in an attempt to protect firms from increasing costs as a result of a higher minimum wage. This would also explain why the observed relationship between minimum wages and employment stocks isn't consistent with the theory.