Minimum Wage and Skills: Evidence from Job Vacancy Data
Low-wage occupations tend to be populated by workers with low levels of education. An increase in the minimum wage, while designed to protect workers in the lower part of the wage distribution, might result in unintended consequences for those same workers. In this paper, we study firms’ reaction to higher minimum wages, exploiting a change to the minimum-wage policy in the UK in 2016. We document how an increase in the minimum wage affects the labour hiring for different education and technical skill levels of workers. The results show that an increase in the minimum wage compressed both the demand for low educated workers and the demand for workers with low levels of technical skills (tech workers) for graduates in low and middle skilled occupations. Using a difference-in-differences framework, we find that a large and unexpected change to the minimum wage led to a 11 percentage point decrease in the proportion of non-graduate vacancies and a 15 percentage point decline in the share of low-tech ads. There is evidence for labour-labour substitution at the low-end of the skill distribution and labour-technology substitution for more educated workers as a way to compensate for labour costs increases.