We study how firms set wages for their employees when they can legally age discriminate across workers. We exploit an age-specific minimum wage change in the UK, which raised the minimum applying to workers aged 25 and over, leaving unchanged the minima for younger workers. Using matched employer-employee data on a low-paying sector, we show large, positive wage spillovers on workers aged under 25, which arise within firms from company wage policy. Pay equity norms offer the most parsimonious explanation for the emergence of spillovers. The effects that we document also operate in other low-paying sectors of the UK labor market.

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13 September 2022     Paper Number CEPDP1869

Download PDF - Company wage policy in a low-wage labor market

This CEP discussion paper is published under the centre's Labour programme.