Around half of all employees set to benefit from the National Living Wage (NLW) work in industries where the resulting wage bill increase will be just 0.6% or less – though the impact in hospitality, retail and support services will be significantly larger – according to a new report by independent think-tank the Resolution Foundation.
The report finds that hospitality will experience by far the biggest wage bill increase at 3.4% by the end of the decade.
The report finds 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% – will eventually rise to 88% by 2020.
In hospitality – where the minimum wage bite is already 93% – it is expected to eventually rise to an unprecedented 110%. More than half of all hospitality workers will be paid the NLW or less as a result, however 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 said 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. It says that improved productivity growth will be essential if the NLW is to be affordable.
It is calling on the government to set out a clear plan for implementing the new NLW and clarify the role of the Low Pay Commission (LPC) in monitoring progress and identifying areas of concern – a key recommendation of its review of the future of the minimum wage.
Conor D’Arcy, policy analyst at the Resolution Foundation, said: “The National Living Wage will give a welcome wage boost to six million workers. Pay rises don’t come for free, and the expected rise will take the wage floor into uncharted territory. But with the economy getting stronger the vast majority of employers should be able to afford the new higher wage floor, which will allow their lowest-paid staff to share in the recovery.
“Past warnings about the negative effects of the minimum wage on employment have been wide of the mark, but the size of the increase in the new wage floor will certainly be challenging in sectors such as hospitality, retail and care.
“It’s not yet clear how employers will respond but, while some may opt to reduce hours or new hires, past experience tells us that most absorb the pressures via some combination of small increases in prices, a dip in profits and productivity gains.”
Conor D’Arcy, Policy Analyst at the Resolution Foundation, said:
“The National Living Wage will give a welcome wage boost to six million workers. Pay rises don’t come for free, and the expected rise will take the wage floor into uncharted territory. But with the economy getting stronger the vast majority of employers should be able to afford the new higher wage floor, which will allow their lowest-paid staff to share in the recovery.
“Past warnings about the negative effects of the minimum wage on employment have been wide of the mark, but the size of the increase in the new wage floor will certainly be challenging in sectors such as hospitality, retail and care.
“It’s not yet clear how employers will respond but, while some may opt to reduce hours or new hires, past experience tells us that most absorb the pressures via some combination of small increases in prices, a dip in profits and productivity gains.
