Benefits of National Living Wage
Labour & European Law Review Weekly Issue 439 30 September 2015
Around half of all employees set to benefit from the National Living Wage (NLW) work in industries where the increase in the wage bill will be just 0.6 per cent or less according to a new report by independent think-tank the Resolution Foundation.
The analysis found that around one in four workers are expected to benefit from the NLW, which will initially be set at £7.20 an hour in April 2016 and is expected to rise to over £9 by 2020. The total wage bill is set to increase by £1.5bn (0.2 per cent) in April 2016, rising to £4.5bn (0.6 per cent) in 2020.
The report also found that around 2.9 million employees benefitting from the NLW – almost half of those affected – work in industries where the wage bill is expected to increase by 0.6 per cent or less. These include education, health, manufacturing and construction.
A further 2.7 million employees who are set to receive a pay rise work in hospitality, retail and support services. A far greater proportion of workers in these sectors will be affected – almost half of all hospitality workers will benefit by 2020 – and the increase in their wage bills will be higher. The report found that hospitality will experience by far the biggest wage bill increase at 3.4 per cent by the end of the decade.
The study also reported that the “bite” of the NLW – its value relative to typical hourly earnings – will also vary considerably across sectors. The bite in retail – which is currently 74 per cent – will eventually rise to 88 per cent by 2020.
In hospitality – where the minimum wage bite is already 93 per cent – it is expected to eventually rise to an unprecedented 110 per cent. More than half of all hospitality workers will be paid the NLW or less as a result. It is important to note, however, that part of the reason for this is that a high proportion of workers in the sector (around one in three) are under 25 and therefore ineligible for the NLW.
The Foundation says that it is not yet clear how businesses in the most affected areas will respond to the NLW, though it points to past evidence of modest price rises in hospitality and efficiency gains elsewhere, with warnings of job losses often proving to be overstated.
The Foundation is calling on the government to set out a clear plan for implementing the new NLW and to clarify the role of the Low Pay Commission in monitoring progress and identifying areas of concern.
Iain Birrell of Thompsons Solicitors commented “The report's common sense and evidence based reassurance that employers will adapt to the NLW, and that the sky won't fall in, is a welcome counterpoint to bleaker predictions. Its impact will undoubtedly assist many low paid workers in bringing home a better wage. We must not lose sight of the fact that, despite its name, this is not actually a living wage in the sense which we understand. Nor does it apply to anyone under 25. It is a therefore a welcome start, but only a start nevertheless.”
To read the report in full, go to: http://www.resolutionfoundation.org/wp-content/uploads/2015/09/NLW-II.pdf