The first 100 days: early evidence on the impact of the National Living Wage

Published on Jobs, Skills and Pay

 

In this briefing note, we combine official data and a bespoke survey to better understand employers’ initial reaction to the announcement and implementation of the National Living Wage and their plans for the future. We also consider the implications of the Brexit vote for the future trajectory of the NLW.

 

  • Our analysis of early employment indicators and our survey of employers supports the conclusion of much previous research on the NMW: reduced employment does not appear to be the primary response employers make to a rising wage floor. Though, of course, we cannot predict precisely how employers will move forward as the NLW increases further, especially with the uncertainty surrounding the UK’s departure from the EU, our survey suggests that lower employment represents the primary strategy for only a handful of employers.
  • Instead, a diversity of other approaches will be used. Each has consequences for different groups. The most common response in our survey was to raise prices with customers facing higher costs as a result. While we are restricted in our ability to examine how this varies across sectors – future Resolution Foundation research will provide more information on low-paying industries – analysis of the impact of the NMW found that while there was little evidence of overall inflation being higher, prices in industries most dependent on minimum wage workers including takeaways, hotels and domestic services, did rise considerably faster than higher-paying sectors.Again, past evidence can only be a guide to future responses particularly when wage increases are so much larger. Research in the US has found more evidence of an impact on prices in restaurants.
  • But the UK’s vote to leave the EU will have important consequences for the NLW’s trajectory. Should projections which envisage real wage growth slowing, the NLW by 2020 is likely to prove difficult to implement for many firms in low-paying sectors. The Low Pay Commission’s expertise will be of particular value in the coming years, drawing upon analysis of the impact increases are having to date, how the most-affected sectors are reacting and what path ahead can deliver for low-paid workers, without putting their jobs at risk.