Minimum Wage in Ireland – A negative and statistically significant effect on the hours worked

On 1 January 2016, the Irish minimum wage (MW) increased from €8.65 to €9.15 per hour, an increase of approximately 6 per cent. Using data from the Quarterly National Household Survey (QNHS) for the years 2015 and 2016, we estimate the effect of the increase in the minimum wage on the hours worked and likelihood of job loss among low paid workers using a difference-in-differences estimator.

We generate a treatment group of MW workers and a control group consisting of higher paid non-MW workers using wage decile and hours worked data. Individuals in the treatment group possess characteristics which have been shown in previous research to be associated with minimum wage workers; the treatment group contains a relatively high proportion of females, people with low levels of education, non-Irish nationals, services sector workers, part-time workers and young people. As expected, individuals in the treatment group are concentrated in low wage deciles, whereas individuals in the control group are concentrated in higher wage deciles.

• The QNHS data contain hours and decile information on 33,760 employees, of which we can allocate 28,511 (84 per cent) to either a treatment or control group. Due to data constraints, we cannot allocate 5,249 workers (16 per cent of the sample) as there is too much uncertainty relating to their minimum wage status. This uncertainty relates to the fact that we are working with wage decile data as opposed to precise wage values. A relatively large proportion of these unassignable employees work low hours. This means that the sample of employees used in this study may not precisely reflect the hours distribution of the full population of workers in Ireland.

• The results indicate that the increase in the minimum wage had a negative and statistically significant effect on the hours worked of minimum wage workers. This was primarily driven by the large hours effect for minimum wage workers on temporary contracts who experienced a weekly reduction of approximately 3.5 hours.
• Our analysis indicates that the results did not occur as part of a general downward trend in hours worked by MW workers in the Irish labour market over time. When the same tests were carried out using data for preceding years for which no change in the minimum wage rate occurred, no effect was
detected.
• Further analysis indicates that the incidence of part-time (PT) employment
increased by approximately three percentage points more in the treatment group (MW workers) compared to the control group (non-MW workers) following the increase in the MW. The increase in the incidence of PT employment was approximately 15 percentage points higher among temporary minimum wage workers relative to non-minimum wage temporary workers.
• Descriptive analysis reveals that while the incidence of involuntary PT work (could not find a FT job) fell in both the control and treatment groups between 2015 and 2016, the absolute decline was higher in magnitude in the treatment group compared to the control group.
• We cannot discount the possibility that incentive effects, whereby more individuals were choosing to work part-time by virtue of the increase in the minimum wage, were a factor in explaining the observed reduction in average hours worked among minimum wage workers following the increase in the rate.
• Both the descriptive and econometric evidence points to some volatility over time in the rate of job loss among low waged and minimum wage workers, with no consistent evidence that the increase in the NMW rate in 2016 caused an increase in the proportions of such workers becoming unemployed or inactive.

Chosen excerpts by Job Market Monitor. Read the whole story at Estimating the effect of an increase in the minimum wage on hours worked and employment in Ireland | ESRI