Dr. Paul Redmond:

The ESRI did a study in which we looked at the spillover effects associated with a general minimum wage increase and we found some. The wages of those earning slightly above the minimum wage shift up a little on average as well. The idea is that people not only want to preserve their actual wage, but also the differential. If someone who initially earns less than me gets a pay rise, I will want a pay rise. We found that when looking at general minimum wage increases. It is quite modest. It does not extend far up the wage distribution, but it does happen.

While we have no direct evidence about sub-minimum wages, several inferences can be made. It comes back to the fact that, because so few workers are paid sub-minimum wage rates to begin with - 80% of people who could be paid that rate are not - if we talk about abolishing those rates, the impact or spillover effect is likely to be quite different. I would not expect there to be a significant spillover effect for two main reasons. First, as I said, because the incidence is quite low. Second, abolishing sub-minimum rates is quite different from increasing the adult rate. Increasing the adult rate essentially raises the wage floor and we would expect wage spillovers as a result. However, abolishing a sub-minimum rate just equalises pay at the bottom of the distribution for a very small number of workers who earn less than the full adult rate. While I have no direct evidence on it, we have evidence on the minimum wage in general and I would not expect any significant spillovers.