These are methodology papers that have either been produced by members of our team outside of the WED project or papers that are relevant in some way to the work of the WED project.
We use over a decade of representative payroll data from Great Britain to study the nominal wage changes of employees who stayed in the same job for at least one year. We show that basic hourly pay drives the cyclicality of marginal labour costs, making this the most relevant measure of wages for macroeconomic models that incorporate wage rigidity. Basic hourly pay adjusts much less frequently than previously thought in Britain, particularly in small firms. We find that firms compress wage growth when inflation is low, which indicates that downward rigidity constrains firms’ wage setting. We demonstrate that the empirical extent of downward nominal wage rigidity (DNWR) can theoretically cause considerable long-run output losses. Combined, our results all point to the importance of including DNWR in macroeconomic and monetary policy models.
Recently the Labour Force Survey (LFS) has moved from reporting on a seasonal to calendar quarter basis. This article uses data on both bases to demonstrate how timing can affect low pay estimates, particularly when the survey period and changes in the National Minimum Wage (NMW) do not coincide. The number of low paid can vary considerably over a year. Looking at the changes in responses throughout the year shows some evidence of non-compliance and different patterns of implementing the NMW according to firm size.
The UK uses two major surveys to produce low pay estimates; the official ASHE measure and supplementary LFS measure. The differences between these measures have been accepted as a consequence of the different survey methods and purposes. This article describes three related investigations into these differences. The first shows how the timing of measurement is important and suggests evidence of non-compliance. The second examines the perceived inaccuracy of responses in household surveys and how this affects LFS low pay estimates. The third shows that the measure of hourly rate used can explain much of the difference between the estimates. This work supports the current methods for generating low pay estimates and highlights the need for an awareness of these background issues when interpreting the estimates.
This article describes a project to link and study the Annual Survey of Hours and Earnings and Labour Force Survey. This investigation looked at the differences between the earnings and hours information collected on the surveys. The results show that some perceptions over the accuracy of the surveys are misplaced, and that researchers can have more confidence in using the data.
Earnings information from household surveys is less accurate than employer information. Household surveys include proxy responses and may not use documentation, so earnings are often approximated at ‘round’ values. However the setting of the 2005 NMW at £5.05 provides a natural experiment in how survey responses are approximated. This paper identifies a tendency to round certain information: employers in setting hourly wage rates and employees in reporting their earnings in household surveys. An important implication, that LFS low pay estimates will be affected by the proximity of the NMW to round numbers, is demonstrated by comparing low pay estimates across years.
Official estimates of the low paid calculated from the Annual Survey of Hours and Earnings (ASHE) are based on a derived hourly rate of pay obtained by dividing total earnings by hours worked. This in contrast to the supporting Labour Force Survey (LFS) estimates which are based on a stated rate. Since 2004 the ASHE has also included a question on a stated rate of pay and this provides the opportunity to produce ASHE estimates on the same methodology as the LFS. This investigation shows that the measure of hourly rate used can explain much of the difference between the ASHE and LFS estimates of low pay and supports the use of the current methodology. The paper also demonstrates how precision affects the estimates due to the yes/no nature of the estimate.