This ESCoE Discussion Paper outlines new, updated ASHE weights, which reveal that the impact of the National Living Wage is greater, and progress toward reducing low pay has been faster, than previously reported.
Low pay has long been a focus of UK government policy, with measures like the National Minimum Wage (NMW) and National Living Wage (NLW) aiming to combat low earnings. However, assessing the true extent of low pay has been challenging. The Annual Survey of Hours and Earnings (ASHE) is a key source for UK earnings statistics, based on a 1% sample of employee jobs. While official weights aim to make the sample representative by gender, age, occupation, and region- jobs in small, young, private-sector organizations are still underrepresented.
By linking the ASHE with the Business Structure Database we were able to improve weighting techniques to correct sampling biases within the ASHE, and subsequently revisit low pay estimates from 2004 to 2021.
What did we find?
- Jobs in smaller organisations, younger organisations and those in the private sector were under-represented in the annual weighted samples from ASHE.
- Younger employees, those on low wages and those working relatively few hours were less likely to remain in the ASHE sample over time. This was even after accounting for their likelihood of leaving employment.
After constructing new weights to remove these biases, our new estimates suggest that:
- The percentage of jobs paid at or below the National Minimum Wage is under-estimated by around 1/5.
- The bite of the NLW is also under-estimated, such that the Government’s targets for this measure have been reached more quickly than previously thought.
- In contrast, the share of employees moving off the minimum wage to higher-paid employment each year is not substantively affected by sample bias.
Why does this matter?
These insights reveal noticeable response biases in the current ASHE estimates, which significantly affect our understanding of the lower end of the wage distribution. This has important policy implications, as the proportion of jobs paid at or below the NMW or NLW, and the prevalence of low pay, are crucial indicators for the Low Pay Commission in advising the government on wage policies.
Now, through The WED Project’s linkage of ASHE and HMRC’s Real Time Information (RTI) system, it will be possible to evaluate the representativeness of the longitudinal ASHE samples in a different manner than has been possible to date.
You can find the full ESCoE Discussion Paper here.
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