New research finds offsetting new National Living Wage will force businesses to choose between boosting worker productivity and cutting costs

  • New research by the Social Market Foundation, in partnership with Adecco Group UK & Ireland, reveals that a quarter of private sector employees will be directly affected – over double the proportion of public sector employees
  • Retail, wholesale and hospitality sectors among those most affected by new rate
  • Businesses face significant challenge to cope with rising wage bill and pressure on productivity
  • Workplaces severely affected by new National Living Wage tend to have low-skilled employees and are much less likely to offer in-work training

A large number of private sector businesses will need to overcome significant productivity challenges in order to cope with the cost of implementing the new National Living Wage (NLW), according to new research released today.

The research, conducted by the Social Market Foundation in partnership with Adecco Group UK & Ireland, analysed the potential impact of the new rate on businesses across the UK. It found that:

  • The new NLW affects a quarter of private sector employees – more than double the proportion of employees in the public sector
  • Retail, wholesale and hospitality sectors are among the most severely affected by the NLW
  • Almost a fifth (18%) of employees who will benefit from the new rate are younger workers,  and, surprisingly, workers aged 50 or over make up a third. The NLW cut-off at age 25 means businesses will be faced with potential discrepancies in wages across their younger workforce
  • Part-time workers make up around half of the workforce in severely affected workplaces

The new research highlights that, for 40% of workplaces severely affected by the NLW, financial performance is a key factor in determining pay, while 47% have traditionally linked salary decisions to the minimum wage. This raises important questions about how these organisations can equip themselves and their staff to cope with rising wage bills.

28% of workers who will benefit from the new NLW are in elementary occupations which require no formal qualifications. Typical job roles include labourers, cleaners and shelf-fillers. Caring, leisure and other services and sales are also significantly affected. Four in ten of those who benefit from the NLW have no qualification or are only educated to GCSE level.

Significantly, workplaces severely affected by the new rate are much less likely to provide ongoing training and development opportunities to their staff, with 46% providing no training at all, or providing training to less than a fifth of their experienced staff in a six month period. The prevalence of part-time workers may also present particular challenges to businesses because the case for investing in their skills may be weaker than for full-time workers.

Commenting on the publication of the research, Nida Broughton, Chief Economist at the Social Market Foundation, said:

“The low stock of skills amongst those affected, and the relative lack of access to in-work training, means that businesses and the Government will have to act to make sure that workplace productivity rises alongside the new regulated wage."

“If businesses can increase productivity there is less likely to be a risk of higher unemployment as a result of the introduction of the NLW, and workers will be more likely to benefit.”

Ms Alex Fleming, Managing Director and member of the Board of Directors, Adecco Group UK and Ireland, said:

“The National Living Wage has the potential to reduce wage inequality and improve people’s lives across the UK. The challenge for businesses, particularly in sectors including retail, wholesale and hospitality, will be in mitigating the impact of the new rate across their workforce and boosting productivity to avoid job losses.

“Businesses should consider training as one of the best ways to respond. Many workers eligible for the rate are low-skilled with little further education beyond their GCSEs. This research shows the value of investing in training and skills for long-term.

“It is crucial that employers consider what these changes mean for them, rather than relying on a one-size-fits-all analysis of any potential impact.”

Workplaces severely affected by introduction of National Living Wage:

Workplaces affected by new wages in UK

Occupations severely affected by introduction of National Living Wage:

Living wage occupations affected

Proportion of affected employees by age:

living wage affected groups

Notes to editors:

 

Interviews and comment

Emran Mian, Director of the Social Market Foundation, is available for interview and comment on request. Please contact Sean O’Brien on sean@smf.co.uk / 07881 940 158.

Alex Fleming, Managing Director and member of the Board of Directors, Adecco Group UK and Ireland is available for interview and comment. Please contact Sam Williams on sam.williams@mhpc.com / 017881 286 215

About the National Living Wage

The new National Living Wage will be set at £7.20 from April 2016. The Government has an ambition that it should reach 60% of median earnings by 2020 (or around £9.30)
The NLW adds a premium (or supplement) to the National Minimum Wage for all workers aged 25 and over. Workers under 25 will continue to be regulated by the National Minimum Wage.

The OBR estimates that around 2.75 million employees will directly benefit. (OBR Economic Fiscal Outlook, November 2015). Early analysis (for example by Resolution Foundation, Taking up the floor and Higher Ground, 2015) has shown that women and those in aged 25 to 30 are likely to benefit more as they are more likely to be on low pay.

However, wage increases could also increase the risk of unemployment: the OBR estimates that unemployment will be 60,000 higher.

About the research

The new research by the SMF, in partnership with Adecco Group UK & Ireland, is part of a report being launched in early March examining what types of businesses are likely to be most affected by the introduction of the NLW, how they can manage the transition and what steps can be taken to improve productivity and wages rise.

We present evidence from two datasets:

The Workplace Employment Relations Survey (2011). In this survey we can look at the workplaces with high and low proportions of employees affected by the NLW by 2020, based on an estimate of what the NLW would have been had it been introduced at the time of the survey. We divide workplaces into two sets:
  • those workplaces that have half or more of their employees directly affected by the NLW – “severely affected”
  • those workplaces that have less than half of their employees directly affected by the NLW – “weakly affected”

The Labour Force Survey (2014) provides information at an employee level and allows us to describe the characteristics of employees that will be directly affected by the NLW in 2016 and also in 2020. We divide employees into the following categories:

  • Affected immediately when the new NLW comes in 2016
  • Affected between 2016 and 2020
  • Not directly affected

This research forms part of Adecco Group UK & Ireland’s wider Regulation and Recruitment campaign. The campaign is assessing the impact of key developments impacting the labour market throughout 2016.