Last week, the UK government accepted the Low Wage Commission’s recommendation that the national living wage (NLW) and national minimum wage (NMW) should increase. Here, David Sheppard and Jarrad Williams balance out the relief it will bring to those workers, and the challenges it might present to employers.
The new rates will apply from the 6th April 2020:
In addition to these increases, the NLW will be extended to 23- and 24-year-olds for the first time (until April 2021, it is only available for workers aged 25 and over). The Low Pay Commission is also proposing the NLW threshold to fall again by 2024, to include 21-year-olds. NMW increases for younger workers will be smaller, in recognition of the risks to youth employment due to the coronavirus recession.
The increase in wages will come as some comfort to the approximately two million NMW or below NMW workers – but may cause further pressure on employers already economically distressed in consequence of the pandemic.
The hospitality, retail, cleaning, and maintenance sectors, which were particularly hit by the COVID-19 lockdown measures, make up 48% of all jobs paying at or below minimum wage. The new rates are going to place additional strain on these employers, who will have to increase staff wages whilst their turnover is at a fraction of normal levels.
To cope with the changes – which are scheduled to take place in the aftermath of a protracted period of lockdown and restrictions on trading, just a week after the furlough scheme is due to end on 31 March 2021, and when consumer confidence is likely to be fragile (unless the vaccine is having real effects in suppressing the virus) – employers may decide to reduce hours, let staff go or avoid taking on additional staff until they are in a better financial position.
Despite these pressures, the Low Pay Commission believes that increasing the minimum/living wage will not have dramatic negative effects on jobs. Several studies conducted between 2017 and 2019 showed that increasing minimum wage rates only had a small effect on overall jobs and job retention.
Yet, these studies also showed that employment retention for part-time workers did decrease when the new minimum wage was increased. This is a worrying trend, since according to the latest labour statistics, 8.6 million people are working part-time. This could mean that 8.6 million people could see a reduction in their working hours.
A rise in employers’ wage bills could be the last straw for many unless there is a strong and sustained recovery in business sentiment early next year. We may well see a return of a new version of the Eat Out scheme as form of economic stimulus at this time, to help those distressed sectors most reliant on NLW and NMW wage workforces.