getting ready for a higher wage floor
TRANSCRIPT
Getting ready for a higher wage floor Tackling Britain’s low pay and
productivity challenge
Faisal Islam, Sky NewsDavid Norgrove, Low Pay Commission
Charlie Mayfield, UKCESRebecca Riley, NIESRAbigail McKnight, LSE
Matthew Whittaker, Resolution Foundation
#livingwage / @resfoundation
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Taking Up The FloorExploring the impact of the NLW on
employers
Matt Whittaker
September 2015
@mattwhittakerRF
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1. A quick recap
2. Measuring the impact on employers
3. Working towards successful implementation
Taking Up The Floor
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A (very) quick recap of what it is & who gets it
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National Minimum Wage (NMW) – compulsory (adult rate covers all 21+)– level recommended by LPC (raise pay in
affordable way)
Living Wages– voluntary (campaign based)– needs-based principle (raise pay to boost living
standards)
National living wage (NLW)– compulsory top-up to NMW from April 2016 (for
25+)– rate based on ‘bite’ not cash level
A quick reminder of what the NLW is (and isn’t)
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The NLW will raise the wage floor for 25+ employees by 50p initially
From April, NLW will be
£7.20, representing a
50p supplement on
the NMW
Set as 55% bite of median 25+
wage, but is roughly
equivalent to 60% bite across all
employees
Around £1 short of
predicted Living Wage
outside London
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With this premium potentially topping £1 by the end of the decade
By 2020, NLW bite rises to
60% of median 25+ wage, raising the
NMW supplement to
around £1
Goes significantly further than
the ‘Bain’ recommendati
on
But remains around £1
short of predicted
Living Wage outside London
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3.2 million ‘directly affected’– brought up to (or above) the new wage floor
2.8 million ‘indirectly affected’– already earn above NLW, but gain from
‘spillover effects’ as employers retain pay gaps between employees
Average individual gross wage gain of £760 – higher for the directly affected
Average household net income gain of £410– reduced by taxes and by loss of benefits for
some
With around one-in-four employees expected to have their pay boosted by 2020
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Measuring the potential impact
on employers
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Impacts will vary– industry– firm size– public/private sector
Focus on three metrics– proportion of staff affected (23% nationally)– bite relative to median (65% nationally)– proportional impact on wage bill (0.6%
nationally)
NB: Not predictions – but indicators of where the most pressure is likely to be felt
The magnitude of the change – especially by 2020 – is likely to raise new challenges for (some) firms
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Coverage is set to be highest in hospitality, support services and retail
Close to half of all employees
in the hospitality
industry stand to be affected
Between one-third and two-
fifths in a handful of
other sectors
Much lower coverage in
higher paying sectors such as
finance
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Bite already varies very significantly and is set to approach (or pass) 100% in some industries
A bite above 100% implies
that at least half the
workforce (including the
under-25s) will be earning at or below the
NLW
High bites are already evident in a number of
lower paying industries
under the NMW
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Wage bill increases will be below 1% in most industries, but significantly higher in a minority of cases
2020 impact looks more challenging than 2016.
Boost of £4.5bn is 0.6%
of projected 2020 wage bill
Set to be much higher in some
industries
But impact will also depend on
relative importance of
wages to overall
operating costs
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Can split industries into three groups in terms of effects and relative size by 2020 – Group 1
A majority of – mainly
relatively small – industries
face bites of 75% and under,
along with wage bill
increases of less than 1%
These industries
account for around two-
fifths of all affected
employees, with education
being easily the biggest
single sector
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Can split industries into three groups in terms of effects and relative size by 2020 – Group 2
A second group faces higher
bites and wage effects from
just below 1% to just above
2%
These industries
account for just under
two-fifths of all affected employees,
with the retail being by far the biggest
sector
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Can split industries into three groups in terms of effects and relative size by 2020 – Group 3
Industries in the third group
record bites broadly in line with Group 2,
but have higher wage
bill effects
These industries
account for around one-
fifth of all affected
employees, with the food &
drink and residential care
sectors being the largest
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Pressures appear likely to be most acute among micro companies
Smaller firms face slightly higher bites than larger
ones, but the impact on
wage bills are significantly
higher among the smallest
companies
Micro companies account for
13% of all affected
employees, with more than half working in
forms with 250+ staff
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Private sector firms more affected– 2020 coverage: 27% vs 14%– 2020 bite: 71% vs 52%– 2020 wage bill increase: 0.8% vs 0.2%– private sector covers four-fifths of affected
employees
But public sector faces overall 1% pay cap– particular issue in local authorities where 20%
of employees will be affected by 2020 (just 8% in central government)
Private sector firms face larger impacts on average, but public sector pay cap adds to the challenge for LAs
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Working towards successful implementation of the NLW
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Impacts appear greatest in hospitality, retail, care and cleaning
Smaller firms look more exposed than bigger ones
Business has adapted in the past– employment (staffing, hours, under-25
substitution)– pay (non-wage compensation, pay
compression)– prices– profits– productivity
But the scale of the NLW takes us into new territory
The NLW will have a modest impact on many firms, but poses a greater challenge for some
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Employer– must meet own commitments in tight
environment
Funder– social care already under severe pressure
Implementer – must clarify the central role of the LPC in
monitoring, advising and recommending on the pace of progress
Supporter of business– helping firms to boost productivity
The government has a clear role to play in ensuring the NLW succeeds