Six Findings from the National Living Wage Review
The Low Wage Commission’s review of the National Living Wage found it had reduced regional wage inequality and helped narrow gender and ethnic pay gaps, but had not led to a increase in income or measurable increase in productivity.
The National Living Wage (NLW) was introduced in 2015 and aimed to raise wages and productivity, while reducing government spending on benefits.
However the articlewhich looked at what the NLW achieved from 2016 to the onset of the Covid-19 pandemic in 2020, found that its potentially positive impact on workers’ earnings was hampered by other factors.
In April 2020, the NLW achieved its original target of 60% of median earnings for workers aged 25+, but a higher target of 66% of median earnings for all workers aged 21+ is now in place for 2024.
Bryan Sanderson, Chairman of the Low Pay Commission, said: “As we continue to push the minimum wage towards its new goal, it is important that we learn from recent history. This review is a timely reminder of the policy’s accomplishments, as well as its limitations.
“The NLW can be seen as a success in reducing pay inequality, and fears about job losses have not materialized. However, productivity improvements were elusive and the impact on worker earnings was tempered by other factors.
“The headwinds facing businesses and workers are greater now than at any time since the introduction of the NLW. Today’s report highlights the need for a balanced and flexible approach to support both, of which the minimum wage is an important part, but not the only one.”
Here are the six main findings of the review.
The hourly NLW grew twice as fast (26%) as the median hourly wage of workers aged 25 and over (12%) between 2015 and 2019. This reduced hourly wage inequality within and between every nation and region of the world. UK.
Between 2015 and 2019, the NLW increased the pay of up to 35% of jobs, including 7% of salaried jobs paid by the NLW in 2019 and a further 28% for which the pay was higher in 2019 than it is. would have been if the NLW had not been introduced.
However, all the effects on the employment rate have been ‘attenuated’. Lower-paying firms experienced lower employment growth than similar firms paying higher wages.
2. Revenues have not increased
While households with at least one ATN worker saw their income increase more than other households (31%, compared to 20%, between 2015/16 and 2019/20), this was compensated by losses in benefits linked to the work such as tax credits or universal credit. This was due to their decline as incomes rose and a freeze in benefit levels.
3. NLW did not increase productivity
The National Living Wage Review found no evidence to suggest that NLW increased productivity growth in regions and industries where NLW is most prevalent.
The LPC says productivity gains require costly investments, which some smaller employers may not have been able to afford, alongside the annual increases in NLW. Only a minority of organizations have chosen to give staff more tasks,
demanded more flexibility on schedules, tightened restrictions on absenteeism, increased the pace of work or raised performance standards.
4. NLW workers were less likely to change employers, but saw their wages increase
Workers often see their wages increase if they change jobs, but the annual increase in the NLW rate has made keeping the same job more attractive.
Every year, about 40-50% of minimum wage workers see a pay rise that moves them away from the wage floor. The NLW temporarily reduced the share of workers leaving the minimum wage in 2016, but progression rates returned to normal levels from 2017 to 2019.
5. The NLW has helped to reduce inequalities
The NLW has reduced the inequality in hourly wages between regions and nations in the UK, with regions with the lowest wages on average seeing the biggest increases.
Across the UK, wage growth was highest at the 10th percentile, driven by increases in the NLW. These increases ranged from 17% in London to 22.5% in Northern Ireland.
6. Reducing gender and ethnic pay gaps among low-paid workers
Women are more likely than men to perceive NLW. As a result, increases in the rate have benefited women more than men. The gender pay gap at the 20th percentile fell from 9% in the first quarter of 2016 to 7% in the first quarter of 2020.
In the first quarter of 2020, the range of hourly earnings in the 20th percentile by ethnicity was 8.7%, compared to 15.1% in the first quarter of 2016. However, while the gap is narrowing for some groups, it does not is not for others.