UK’s National Living Wage: prices up and profits down, but no job losses

The UK?s new ?National Living Wage? (NLW) has not led to job losses, a new survey suggests.

The Resolution Foundation found that employers have responded to the higher minimum hourly wage for workers aged 25+ by raising prices or taking lower profits, rather than cutting jobs.

But the think-tank also cautioned that more firms will have to look at productivity-enhancing measures in the coming years.

The survey of 500 businesses was carried out by Ipsos MORI just before the referendum on the UK?s membership of the European Union. It revealed that the NLW has increased the wage bill for around a third (35%) of firms, although only 6% said it had to a large extent.

Another 16% of firms expect the NLW to increase their wage bill at some point in the future.

Among the businesses already affected by the NLW, 36% have increased prices to compensate for the higher wage costs, while 29% have reduced their profits. Only 8% said they had cut paid breaks, overtime or bank holiday pay.

According to the Resolution Foundation, employers seem to be taking a ?suck it and see? approach, deciding to monitor how their industry as a whole is reacting without changing their current business model. While this is understandable in the short term, many firms will need to adjust their action in the medium-to-long term, the think tank believes.

The report notes that around one in seven firms say they have already invested more in training (15%), and that one in eight (12%) report having invested more in technology as a result of the NLW. Making productivity-enhancing approaches like these a more common response to the NLW will help maintain the success of the policy in the coming years, while also tackling the UK?s wider productivity problems, the authors suggest.

Looking at the impact of Brexit, the report says that leaving the European Union is likely to have a major impact on the UK labour market in the coming months and years, particularly in sectors such as food manufacturing and domestic services, which rely heavily on EU migrant labour and have a high proportion of staff affected by the NLW.

Additionally, higher inflation in the wake of Brexit may weaken real wage growth, reducing the current projected real value of the NLW in 2020. The report estimates that the real-terms value of the NLW in 2020 could be up to 40p lower than had been expected before the Brexit vote.

Commenting on the report, Conor D?Arcy, policy analyst at the Resolution Foundation, said:

?The National Living Wage 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.

?Brexit is likely to reshape the landscape in which many low-paying sectors operate. This means that the expertise of the independent Low Pay Commission is more important than ever, and ministers should carefully heed their advice.?