WIREDGOV

3.2m workers in total to gain directly from policy, with further 2.8m benefitting from ‘ripple effect’

Three in every ten (29 per cent) female employees in the country are set to receive pay rises as a result of the new ‘National Living Wage’, according to a new report published today (Thursday) by independent think-tank the Resolution Foundation.

The new measure, which was announced in July’s Budget, is set to lift the pay floor for workers aged 25 and over from April 2016 onwards. It will initially be set at £7.20, 50p above the National Minimum Wage which will be £6.70 from October 2015, and will rise to an expected value of around £9.35 by 2020.

New analysis by the Resolution Foundation finds that 6 million people – around 23 per cent of all employees – will receive some form of pay rise by the end of the decade as a result of the policy. Of these, 3.2 million are expected to be earning less than the National Living Wage and gain directly by having their pay lifted to at least that level. The average annual cash gain will be £1,210 (though it will be far higher for those working full-time who are currently on the minimum wage).

However, the Foundation estimates that a further 2.8 million employees who already earn at or above the National Living Wage will also benefit from a ‘ripple effect’, as employers aim to maintain pay gaps between different workers. The average cash gain for these employees will be £240 by 2020.

Women are expected to account for 3.7 million of those receiving a pay rise – representing 61 per cent of the total and nearly three in ten of all female employees – because of their higher concentration among the low paid. A lower proportion of male employees will gain, with 2.3 million (18 per cent) expected to see their earnings boosted.

The Foundation estimates that the distribution of gains will contribute to a modest narrowing of the gender pay gap over the coming years. From 2014 to 2020, it is expected to speed up the pace at which the gap narrows by up to one-fifth.

However, because far more women work part time than men, male winners will on average record bigger annual cash gains in total pay than their female counterparts (£860 in 2020, compared to £690).

The report also sets out how the NLW’s impact will vary across the UK. Yorkshire and the Humber will be the most affected, with 28 per cent of those working across the region expected to benefit from the minimum wage top-up by 2020. The East Midlands (27 per cent), West Midlands (27 per cent), and Wales (27 per cent) will be similarly affected. The capital is set to be the least affected region as pay levels tend to be higher. The proportion of employees benefitting across London is, at 14 per cent, half that of many other regions.

Implementing the National Living Wage is expected to pose a significant challenge to several lower-paying industries, an issue which will be explored by a separate RF report and event on 15 September.

Other findings from the report include:

• 40 per cent of part-time workers will benefit from the NLW, compared to 16 per cent of full-time workers.
• The biggest average wage gains will go to workers aged 25-30. They will see their average annual pay increase by £890 in 2020, compared to an average of £790 across all older age groups.
• The regional ‘bite’ (the NLW as a proportion of the typical wage) will vary significantly across the country, standing at 47 per cent in London by 2020 compared to 72 per cent in the East Midlands and 71 per cent in Wales, Yorkshire and the Humber and the West Midlands.
• Households in the bottom half of the income distribution are set to account for 52 per cent of the gross wage gains from the NLW.
• The share flowing to households in the bottom half falls to 45 per cent when looking at overall net income gains (after tax and benefit changes are accounted for). This decrease occurs because households in the bottom half are more likely to be in receipt of means-tested state support, which will be withdrawn as their earnings rise.
• Focusing on the working age population, 60 per cent of the gross wage gains will go to those in the bottom half of the income distribution (and 54 of the net income gains).

Conor D’Arcy, Policy Analyst at the Resolution Foundation, said:

“The National Living Wage represents a much-needed boost to the wages of millions of low paid workers. Because of their concentration among the low paid, women will account for the majority of the winners. This will have a positive – though modest – effect on the gender pay gap, and will particularly help those working part time.

“With typical wages still only at their 2004 level in real terms, and the employment rate at an historic high, the case for boosting the wages of these workers is strong. However, the pace of NLW increases over the parliament will move our labour market into uncharted territory.

“The sixteen years since the introduction of the first minimum wage have shown that UK employers are adaptable and have coped well with the rising wage floor. But with the NLW set to deliver a pay rise to almost three in ten employees in some regions, the impact on workers – and the challenge for employers – in these areas will potentially be large.”

Notes to Editors

All cash figures are in 2016 prices.

In the Summer Budget of July 2015, the Chancellor announced the introduction of a new ‘National Living Wage’ citing Resolution Foundation’s 2014 review of the National Minimum Wage, led by Sir George Bain, which proposed a focus on moving over time to a more ambitious ‘bite’ rather than targeting arbitrary cash figures.

From April 2016 those aged 25 and over will receive a supplement to the National Minimum Wage (which will remain in place for those aged 21-24). This new ‘National Living Wage’ is intended to equal a ‘bite’ of 55 per cent of the median wage among those aged 25 and over, rising to 60 per cent by 2020. In 2016 it will be £7.20, 50p higher than the NMW which will be £6.70 from October 2015.

The Foundation will present the findings of this report at an event – ‘Where next for the Living Wage?’ – at Central Hall Westminster on Thursday 3 September. Please contact the press office if you’d like to attend.

In a forthcoming report, RF will explore the implications of the NLW for different sectors, looking in detail at the wage bill. The report launch event – ‘Getting ready for a higher wage floor: Tackling Britain’s low pay and productivity challenge’ – is held with the Low Pay Commission and UK Commission for Employment and Skills, with David Norgrove and Charlie Mayfield appearing on the panel. Tickets can be booked here.