Impact of National Living Wage for Employers

Figures from the Resolution Foundation today show that the National Living Wage will be felt most by employers in Sheffield, Nottingham and Birmingham.

The Resolution Foundation, a think-tank, has reviewed the changes required by the new higher minimum pay laws and found that employers in lower-paying regions are likely to feel the strain. The National Living Wage requires employees aged 25 and over to be paid at least £7.20 an hour. The policy introduced by the Chancellor in the Summer Budget has been deemed ‘ambitious’ and will see the total wage bill rise by 0.3% in London and as much as 0.8% in Birmingham.

It is expected that the pay floor will reach £9 an hour by 2020 and will impact more than 6 million employees across the UK; this is roughly 23% of the workforce. Of the 6 million, 3.2 million employees are expected to be directly affected by the increase in pay, whilst the remainder, who already earn more than the national living wage, will see their pay rise in line with their colleagues.

The Office for Budget Responsibility has produced official forecasts for the Government and estimates that 60,000 fewer people would be unemployed if the national living wage was not introduced. The Resolution Foundation has expressed concerns that the national living wage could have a considerable impact for low-paying sectors; therefore politicians would need to work closely with employers to ensure the changes were a success. The implementation of this new law is to be the first test of the new devolved powers for local governments.

The introduction of the National Living Wage comes as the Chancellor attempts to increase productivity and move the UK towards a high pay economy. There are still some concerns that this will not make enough of a difference to tackle Britain’s low pay problem. Additionally, some have noted that career progression might be reduced as a greater proportion of employees are expected to be paid the legal minimum. The compression of the wage distribution risks undermining career ladders and progression incentives. 

The full report can be found here.