Industrial strategies? Exploring responses to the National Living Wage in low-paying sectors

Published on Wages & Income

This report provides another contribution to evidence on the impact of the National Living Wage to date.

  • So far no dramatic changes are visible at an aggregate level. With half of employers even in low-paying sectors unaffected by the NLW’s initial rate of £7.20, and many others experiencing only a small increase in their wage bill, this is perhaps unsurprising. Clearly however, a small minority of firms have struggled with the NLW’s introduction and some employers interviewed expressed concerns about their ability to keep pace with the rising wage floor over the next few years.
  • But in both the interpretation of report’s the survey results and in the views of employers expressed in the interviews, isolating the NLW’s impact from other pressures and changes is difficult. This research was carried out three months after the EU referendum. Economic indicators show some signs of a knock-on effect from the decision to leave the EU but on the whole, the labour market response in the latter half of 2016 has been minimal.
  • For low-paid employees, the findings here generally represents good news, with some surprising upsides in relation to increased perks, greater focus on progression and more productivity. Of course on many of these, the gap between what is promised and what is delivered is likely to be wide and as the NLW rises higher, the inability to raise productivity may mean employers face more difficult decisions. But the NLW’s link to median pay rather than an arbitrary cash target perceived should mean that the wage floor’s progression to 2020 is broadly in line with wage growth and the performance of the economy overall. But the need is clear for continued monitoring of the policy’s impact to ensure it can deliver what is was intended to for the UK’s lowest earners.