UBI or the minimum wage?
lead to a 2% decline in the demand for labour, suggesting the wage bill (the amount paid to unskilled workers as a whole (Cooper and John, 2012)) for unskilled workers increases drastically due to the minimum wage, with very limited effect on their employment. However, empirical evidence from the UK paints a different picture.
The NMW was introduced in the UK on 31 July 1998, set at £3.60 an hour and is adjusted annually to keep up with inflation. When a technique called SCM (Synthetic Control Method – a framework for picking a pool of control variables in economics that work better than any single economy would) was used to choose countries against which to compare the UK’s unemployment, the study found that the introduction of the NMW and the subsequent increases caused an average increase in youth unemployment over the time frame studied of 2.51%, with the study accepting a margin of error of 2.37% (once the data was controlled for increased eastern European immigration and abnormalities in growth caused by the financial crash). However, these figures can be misleading. The NMW only applied to adults when it was first introduced and was only expanded to teenagers in 2004, which explains why youth unemployment only started to deviate widely from the estimated levels after this point (shown in figure 3). Figure 3 shows the actual youth unemployment rate in the UK (the solid line) alongside the predicted youth unemployment based off the control countries data (the dotted line). Unsurprisingly, youth unemployment decreases when a minimum wage is introduced for adults (since Note. Figure 3, showing the effect on youth unemployment of the introduction of a minimum wage in the UK. The first dotted line represents the introduction of a minimum wage for adults, with the second representing the introduction of a minimum wage for teenagers. From ‘ Comparative politics and causal evaluation of structural reforms: the case of the UK national minimum wage introduct ion’, by T. König, G. Ropers, & A. Buchmann, 2019, Political Science Research and Methods, 8(2), 301-314. doi:10.1017/psrm.2019.45. Copyright 2019 by The European Political Science Association.
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