The Chair of the Low Pay Commission says the least well-off have seen their lot improve, but some businesses struggle to manage wage increasesby Bryan Sanderson / December 22, 2018 / Leave a comment
The minimum wage and its successor the National Living Wage—introduced in 2016—have been a significant intervention in the labour market. So far they have successfully satisfied the Low Pay Commission’s remit of raising pay without causing unemployment. Indeed, employment is at or near historic high levels. This has been delivered under the guidance of commissioners representing business, the unions and independent academics, who offer advice to the government on rates.
Before the NLW was introduced about a million people were paid the minimum wage. Under the NLW—which sets the minimum for over 25s—this has risen to 1.6m. However, in our 2018 report published at the end of November we estimate that, including the “spillover effect,” around five million workers benefited from the NLW increase to £7.83 in 2018. This indirect impact occurs when employers are compelled to adjust slightly higher rates to maintain job grade differentials or position themselves in the market as paying just above the minimum wage.
These numbers illustrate what a significant change the NLW has been for those on low pay as over the years they have seen increases well in excess of changes to average wage rates. This is particularly felt in the poorer regions of the UK where the impact is disproportionately large, and on women who regrettably continue to be more likely than men to be paid the minimum wage.
For workers the outcome is a welcome pay rise but we have consistently heard from businesses that increases in the minimum wage are difficult to manage, particularly for small employers when taken together with other cost pressures and the long-running political uncertainties surrounding the Brexit debate.
Employers have responded to increases by accepting lower profits, increasing prices where possible and restructuring workforces, often narrowing pay band differentials. They have been aided in managing this process by the broad predictability of the progression towards the government’s target of 60 per cent of the average wage by 2020. Notwithstanding the above some sectors undoubtedly find the development very challenging. The care sector, retail, textiles and hairdressing are examples. Although most welcome the improved living standards for their employees, the increases are difficult to absorb.
The obvious and desirable way to address these issues is by an increase in productivity on a sustainable basis. Worryingly our various consultations have found little…