Measuring non-compliance with the minimum wage (or: Looking at secondary data) Hilary Drewa, Felix Ritchiea, Michail Veliziotisb, Damian Whittarda a University of the West of England, Bristol b University of Southampton Assume first session has covering stylised facts about what we currently know about non-compliance

Why non-compliance? Important for policy Statistically sensitive particularly in Europe (non-compliance v small) ish

Why non-compliance?

Two separate problems Understanding the causes of non-compliance Distinguishing genuine non-compliance from measurement issues our interest today How confident can we be in the evidence? What tools/techniques give us confidence?

Measuring non-compliance in the UK Employee £wages Interest is left-hand side, derived from right-hand side – problem is the confidence we have in the middle bits. Employer

Measuring non-compliance in the UK Employee Apprentice Pay Survey BIS Labour Force Survey £wages ONS Annual Survey of Hours and Earnings Interest is left-hand side, derived from right-hand side – problem is the confidence we have in the middle bits. Employer

Measuring non-compliance in the UK Employee Apprentice Pay Survey BIS Labour Force Survey £wage rate £wages £wages ONS Annual Survey of Hours and Earnings Interest is left-hand side, derived from right-hand side – problem is the confidence we have in the middle bits. Employer

Stages in measuring compliance Employers decide what to pay workers What we want to know

Stages in measuring compliance Employers decide what to pay workers Employers pay workers What we also want to know

Stages in measuring compliance Employers decide what to pay workers Employers pay workers A subset of worker-employer interactions are sampled The best we can do for gathering evidence

Stages in measuring compliance Employers decide what to pay workers Employers pay workers A subset of worker-employer interactions are sampled Hours and earnings information is gathered What we actually observe

Stages in measuring compliance Employers decide what to pay workers Employers pay workers A subset of worker-employer interactions are sampled Hours and earnings information is gathered Data are processed into suitable measures What we do to clean up the data we observe

Stages in measuring compliance Employers decide what to pay workers Employers pay workers A subset of worker-employer interactions are sampled Hours and earnings information is gathered Data are processed into suitable measures Data are weighted What we do to make the data representative

Stages in measuring compliance Employers decide what to pay workers Employers pay workers A subset of worker-employer interactions are sampled Hours and earnings information is gathered Data are processed into suitable measures Data are weighted Compliance is calculated How we create a target measure

Stages in measuring compliance Employers decide what to pay workers Employers pay workers A subset of worker-employer interactions are sampled Hours and earnings information is gathered Data are processed into suitable measures Data are weighted Compliance is calculated Inferences are drawn How we interpret the results

Stages in measuring compliance Employers decide what to pay workers Employers pay workers A subset of worker-employer interactions are sampled Hours and earnings information is gathered Data are processed into suitable measures Data are weighted Compliance is calculated Inferences are drawn Policy decisions are made How we react

Stages in measuring compliance Employers decide what to pay workers Employers pay workers A subset of worker-employer interactions are sampled Hours and earnings information is gathered Data are processed into suitable measures Data are weighted Compliance is calculated Inferences are drawn Policy decisions are made All of this has to work!

Problems (for today) Distinguishing genuine non-compliance from measurement issues data collection data quality data processing

Problems: data collection When do you collect your data? Annual surveys: good timing? For minimum wage, exogenous dates Quarterly LFS provides information

Problems: data collection Who do you get data from? are you getting the right sort of respondents?

Problems: data collection Who do you get data from? are you getting the right sort of respondents? usual ASHE sampling rate ~ 0.75%

Problems: data collection Who do you get data from? are you getting the right sort of respondents? will you get honest responses? some (weak) anecdotal evidence: no, ish but knowledge is more relevant than malice

Problems: data collection Who do you get data from? are you getting the right sort of respondents? will you get honest responses? will you get accurate responses?

Problems: quality of input data

Problems: quality of input data

Problems: quality of input data

Problems: quality of input data Do people understand the survey?

Problems: quality of input data Do people understand the survey? mostly but LFS/ASHE/APS all show evidence of specific failure of understanding

Problems: quality of input data Do people have the knowledge to provide quality data? LFS and ASHE: mostly APS: in some professions, mostly not

Problems: processing

Problems: processing

Problems: processing

Problems: processing

How confident are we? LPC* Us All workers Apprentices ASHE lower bound but accurate for observed LFS best estimate for non-ASHE subgroups LFS predictably inaccurate for larger groups only Apprentices ASHE under-estimate APS accurate ASHE lower bound APS over-estimate but closer * our view of what LPC thinks…

Summary: understanding secondary data creation matters detective work, not econometrics simple descriptives very helpful comparative and qualitative data helpful sampling & processing & q. design talk to data providers Natural constraints highlight problems