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National Living Wage not jobs-killer some predicted it would be

14/07/2016 / Comments 0

national living wage not jobs killer

The Office for Budget Responsibility predicted that the introduction of the National Living Wage (NLW) would lead to 60,000 job losses by 2020. But, three months after the wage’s introduction, a survey has revealed that these fears may have been misplaced.

Whilst it’s still too early to fully judge the impact of the higher wage floor, the first major survey of business responses to the NLW from the Resolution Foundation shows positive reactions – though it’s clear more must be done in the coming years to help maintain the policy’s success.

The survey, which quizzed 500 businesses about the NLW in the run up to the EU referendum, found that whilst around a third (35%) of businesses said that the NLW has increased their wage bill this year, only a small proportion have responded by cutting jobs.

This is backed up by new unemployment figures* from the Office for National Statistics which revealed that the UK unemployment rate has fallen to 4.9%, the lowest since July 2005.

The official figures show that the unemployment total fell to 1.65 million in the March-to-May period, down 54,000 from the previous quarter.

Little evidence of negative response

The NLW, which requires employers to pay staff aged 25 and over at least £7.20 an hour, was introduced in April.

In the months leading up to its introduction many warned that jobs would be cut, benefits slashed and recruitment stalled.

But, three months later, the survey has found little evidence to suggest that businesses are taking negative responses such as these.

Of the businesses whose wage bill has increased, just 14% said they have used fewer workers, offered fewer hours to staff or slowed recruitment. And, only 8% reported that they have reduced aspects of reward packages, such as paid breaks, overtime or Bank Holiday pay.

Perhaps what’s most encouraging is that a lower proportion of all companies plan to take these approaches over the next five years.

Instead, many businesses affected by the NLW have chosen to absorb the impact themselves by raising prices (36%) or reducing profits (29%).

Some businesses have even taken steps to improve productivity as a result of the new policy, with 15% reporting that they’ve already invested more in training and 12% having invested more in technology.

The Resolution Foundation says that to maintain the success of the policy in the coming years and help tackle the UK’s wider productivity problems these productivity-enhancing approaches should be a more common response to the NLW.

Challenges ahead

The NLW, which was announced by George Osborne in last summer’s Budget, is expected to rise to £9 by 2020, giving Britain one of the most generous pay guarantees in the world.

But, despite the initial positive response, the think tank has warned that the UK’s decision to leave the EU could significantly affect the government’s new wage policy in the coming years.

The report notes that the Brexit outcome is likely to have a major impact on the labour market with many businesses facing changes in how they recruit and pay staff, and operate their business.

Also, the uncertainty sparked by the decision to leave the EU is likely to significantly impact the NLW because it is set as a proportion of typical worker earnings.

Resolution Foundation analysis shows that weaker real wage growth driven by higher inflation in the wake of Brexit could reduce the current projected real terms value of the NLW by up to 40p an hour by 2020.

What do you think? Has the NLW negatively impacted your business? Please share your views in the comments below.

*Note: Post updated on 20th July 2016

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