Living wage has not led to job losses

Osborne cropped  wide

Chancellor George Osborne introduced the National Living Wage in April

​Westminster-set National Living Wage has not led to job losses - but its effectiveness could be lessened by Brexit

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11th July 2016 by Graham Martin 0 Comments

Jobs haven’t suffered as a result of the introduction of the Westminster government’s National Living Wage (NLW), a think tank survey has found.

There had been fears employers could off-load workers to pay the rate, which was set by the chancellor in April.

However, a survey by the Resolution Foundation has found that instead firms are increasing prices or reducing profits.

The mandatory NLW requires employers to pay workers aged 25 and over at least £7.20 an hour and when introduced it was expected to give 1.3 million workers an immediate pay rise across the UK.

Resolution’s report marks the first major survey of businesses since the policy’s introduction and considers both the initial impact of the NLW and its longer term prospects in the wake of the UK’s decision to leave the European Union.

Brexit is likely to reshape the landscape in which many low-paying sectors operate

The survey of 500 UK firms finds that around a third (35%) of businesses say the NLW has increased their wage bill this year, though only 6% said it had to a large extent. A further 16% of firms expect the NLW to increase their wage bill at some point in the future.

Of those firms affected by the NLW, the most popular short-term action taken has been to increase prices (36%) followed by taking lower profits (29%).

The foundation said that while this approach is understandable in the short-term, many firms will need to adjust their actions in the medium-to-long term.

However, overall the survey finds little evidence of negative responses to the NLW from employers. Roughly one in seven firms (14%) whose wage bill has increased say they have used fewer workers, offered fewer hours to staff or slowed recruitment.

Just one in twelve (8%) say they have reduced aspects of the reward package, such as paid breaks, overtime or bank holiday pay.

Crucially, the foundation added that there is little evidence that the NLW has had any significant employment effect among lower paid workers.

Of greater concern is the economic impact of the Brexit vote, which could reduce the value of the NLW by increasing inflation.

Conor D’Arcy, policy analyst at the Resolution Foundation, said: “The NLW has already delivered a welcome pay boost to millions of workers. The big question has been how employers would respond. The evidence so far is that firms have absorbed some of the impact on their wage bill, while passing on a share of those rising costs to consumers through higher prices.

“Encouragingly, evidence of workers seeing their hours cut or even losing their jobs has so far been relatively limited. The challenge now is for firms to continue to respond positively to the National Living Wage, particularly by raising productivity.”

However, he added: “Brexit is likely to reshape the landscape in which many low-paying sectors operate.”

The Westminster NLW was criticised when introduced because it actually falls over £1 short of the recommended Living Wage of £8.25 per hour which has been set by the Living Wage Foundation, to which many third and public sector bodies in Scotland are signed up.

Campaigners accused the UK government of trying to package minimum wage proposals as a new living wage.

The Scottish Living Wage Campaign was set up in 2007 by the Poverty Alliance and STUC and  thousands of organisations have opted to pay it and have been accredited as official Living Wage Employers.

When the Westminster NLW was introduced, Peter Kelly, chair of the Scottish Living Wage Campaign, said: “While any increase in the minimum wage is to be welcomed, it is important that people recognise that this is not a living wage.”