WED Research Papers

Abstract: The Annual Survey of Hours and Earnings (ASHE) is based on an annual 1% sample of employee jobs and provides many of the UK’s official earnings statistics. These statistics are produced using official weights designed to make the achieved sample in each year representative of the population of employee jobs in Britain by gender, age, occupation and region. However, we show that jobs in small, young, private-sector organisations remain significantly under-represented after applying these weights. To address this issue, we develop new weights and demonstrate their importance through policy-relevant examples. Our new estimates suggest that the bite of the National Living Wage is greater than previously reported, and the gender pay gap is wider. We conclude that a new official review of the methodology for ASHE is merited to improve the accuracy and reliability of data informing earnings analysis and research in the United Kingdom.

Abstract: Ethnicity wage gaps in Great Britain are large and have persisted over time. Previous studies of these gaps have been almost exclusively confined to analyses of household data, so they could not account for the role played by individual employers, despite growing evidence of their wage-setting power. We study ethnicity wage gaps using high quality employer-employee payroll data on jobs, hours, and earnings, linked with the personal and family characteristics of workers from the national census for England and Wales. We show that firm-specific wage effects account for sizeable parts of the estimated differences between the wages of white and ethnic minority workers at the mean and other points in the wage distribution, which would otherwise mostly have been attributed to differences in individual worker attributes, such as education levels, occupations, and locations. Nevertheless, there are substantial gaps between the wage structures of white and ethnic minority employees which cannot be accounted for by who people work for or other attributes, especially among higher earners.

Abstract: We assess the extent to which the UK disability pay gap is a consequence of the distribution
of workers across firms and within-firm disability pay gaps. We do so by applying
decomposition methods to newly-linked data which matches high quality information
from employer payroll records to Census data on disability. Our findings indicate that the
distribution of disabled and non-disabled employees across firms acts to reinforce withinfirm disability-related pay inequality in England and Wales. However, both the disability pay
gap and unexplained disability pay gap predominately exist within rather than between
firms, supporting the introduction of employer disability pay gap reporting in the UK.

Abstract: Given the urgency of the transition to net-zero, there is a need for a robust evidence base to support an environmentally sustainable and equitable economy. Employing a linked administrative dataset and using both cross sectional and panel estimation techniques, this study examines employment opportunities and estimates the economic benefits of working in green occupations. Consistent with social role theory, the results indicate that individuals are more likely to work in green occupations if they are white, male, full-time, not represented by a collective agreement, and work for an SME or foreign owned business.

Contributing to the international literature on pay in green jobs, the study reports a pay premium of four percent after controlling for other factors. Employees covered by collective agreements receive additional pay benefits, yet representation is less prevalent in directly green occupations. In line with research into attitude-behaviour gaps, the study demonstrates that while personal travel behaviours and green employment choices are often inconsistent, when they align this yields a pay dividend.

The research makes an important and novel contribution by showing that green employment can partially mitigate inter-occupation pay gaps, while identifying that persistent gender and ethnic pay disparities remain within green occupations. Females appear particularly disadvantaged by domestic and childcare responsibilities. This study also reports sector effects, with more traditional industries such as manufacturing and construction exhibiting entrenched gender biases. The results highlight the need to integrate considerations of inequality into theoretical frameworks that aim to understand and conceptualise the uptake of green jobs.

Abstract: This study examines returns to tenure using Mincer wage regressions and longitudinal employer-employee payroll data from Great Britain. We find a pervasive downward bias in estimates of returns to tenure that rely solely on match fixed effects to control for unobserved factors influencing wages and tenure. This bias stems from the co-movement of average wages and tenure within firms, as theorised and empirically shown by Snell et al. (2018). By addressing this bias with firm-year fixed effects, we find that tenure-wage profiles increase by up to 20% in Britain’s largest private-sector employers. Further analysis reveals that the bias primarily originates from non-base earnings (e.g., overtime). These findings underscore the need for caution when interpreting tenure returns from wage regressions that omit firm-year fixed effects, particularly in samples where non-base earnings are present; even if base earnings are sticky, firms may adjust other earnings components in response to shocks that influence employment levels.

Abstract: National payroll earnings data reveal that men are generally paid more than women when they enter firms. Although this hiring wage gap has narrowed over the past two decades, it still accounts for over half of the overall gender pay gap in Great Britain. Even when firms hire men and women into the same specific occupation at roughly the same time, and accounting for previous work experience, there remains an unexplained hiring wage gap within jobs that favours men by 2.6%. These findings suggest that gender pay gap reporting laws that focus exclusively on the overall gaps within employers miss an important margin. Mandating employers to additionally disclose their wage gaps among newly hired workers could be highly informative.

Abstract: In April 2016, a National Living Wage replaced the National Minimum Wage for employees in the UK aged 25 and above, raising their statutory wage floor by 50 pence per hour. This uprating was almost double any in the previous decade and expanded the share of jobs covered by the wage floor by around 50%. Using linked employer-employee data, we examine the effect of this policy on the propensity for minimum-wage employees to change firms. We find no evidence that the substantial compression at the bottom of the wage distribution affected the average rates of year-to-year cross-firm mobility among low-paid workers. While past studies have suggested relatively benign effects of UK minimum wage policy on employment levels, our findings suggest that this also applies to employment dynamics and the aggregate reallocation of workers across firms.

Abstract: Previous studies of gender-ethnicity wage gaps have almost exclusively been confined to analyses of household data, so do not fully account for employer influence and wage-setting power. Exploiting high quality employer-employee payroll data on jobs, hours, and earnings, linked with the personal and family characteristics of workers from the population census for England and Wales, we show that firm-specific wage effects account for sizeable parts of the estimated differences between the wages of white and ethnic minority workers at the mean and other points in the wage distribution, which would otherwise mostly have been attributed to differences in individual worker attributes, such as education levels, occupations, and locations. Nevertheless, substantial gaps persist between the wages of white and ethnic minority employees, especially among higher earners. These patterns differ notably by gender and whichever ethnic minority group is compared with white workers. Since most of the wage disadvantage for ethnic minorities appears to sit within firms, our findings suggest that recent legislative reforms on firm-level gender pay gap
transparency could be worth extending in the UK, to encompass gender-ethnicity gaps.

Abstract: We respond to a selection of questions raised in the Low Pay Commission consultation, focusing on research undertaken within the WED project.

Abstract: We examine the incidence of minimum wage employment in Britain over the period 2016-2021 using data from the Annual Survey of Hours and Earnings (ASHE). We adjust for survey non-response biases, deriving an alternative set of cross-sectional weights to those provided by the Office for National Statistics (ONS). We show that the incidence of minimum wage employment is greater under the alternative set of weights. However, the scale of the adjustment varies by occupation, industry and region.

Abstract: Nominal wage cuts have a strong negative effect on morale, while employee involvement in workplace decision-making tends to increase morale. We derive predictions on how these two mechanisms affect the decisions of firms to cut nominal wages. Using matched employer-employee and manager survey data from Great Britain, we find support for our model: nominal wage cuts are only half as likely when managers think that employees have some discretion over how they perform their work, but this reduced likelihood recovers partially when employees are involved in the decision-making process at their workplace.

Abstract: Recent research indicates that the percentage of employees in Britain who are low paid – earning below two-thirds median hourly earnings – has been falling in the last 6-7 years. The Wage and Employment Dynamics (WED) project, revisits estimates of the incidence of low pay over the period 2004-2018 using new methods, and indicates that the incidence of low pay among those aged 25 and above has been falling since 2013, predating an increase in the NMW/NLW bite. This decline appears to be driven by an increase in the probability of leaving low pay for higher pay, an increase that began in 2012/13. We show that the incidence of low pay is over-estimated and the decline in low pay under-estimated if one does not account for non-response.

Abstract: Low inflation has forced the topic of downward nominal wage rigidity (DNWR) back to the centre stage of macroeconomics. Using over a decade of representative payroll data from Great Britain we find that: basic wages drive the cyclicality of marginal labour costs and show substantially more evidence of downward rigidity than previously documented. We also find evidence that employers compress wage growth when inflation is low, indicating that DNWR constrains wage setting. Further, we show that the wages of new hires and incumbent employees respond equally to the business cycle. These results all point to the importance of including DNWR in macroeconomic and monetary policy models, and our simulations demonstrate that the empirical extent of DNWR can cause considerable long-run output losses.

Abstract: Using ASHE 2004-2019 we report consistent time series estimates of the percentage of jobs on and around the minimum wage; low paid jobs above the minimum; and ‘high paid’ jobs. In doing so we report on some important methodological considerations including the construction of hourly pay in ASHE; the identification of ‘main’ and ‘other’ jobs; the incidence of missing data; and the use of rounding. We show the percentage of jobs paying around the minimum wage has risen over the period, but so too has the number of ‘high paid’ jobs.