Inflated prices but no job losses: The verdict on the National Living Wage

Businesses have chosen to raise prices rather than cut numbers of employees in response to the National Living Wage, according to a survey by independent think tank
Resolution Foundation.
The government scrapped the National Minimum Wage — £6.50 an hour for workers — for a new “National Living Wage” of £7.20 an hour for workers over the age of 25. It came into force in April this year.

The lower minimum wage still applies to workers aged between 21 and 25 still.

A little over a third of businesses affected by the living wage had put their prices up, while 29% said they had reduced their profits, according to a report by the Resolution Foundation.

The group surveyed 500 firms before the EU referendum vote in June. Only 14% said they had used less labour as a result of the living wage, with more firms saying they would increase the work load on existing staff and invest more in training.

“The evidence from early indicators then is that the NLW is on the minds of many employers but that fears of job losses do not appear to have been borne out,” the Resolution Foundation said in its report.

Here is the chart:

The firms said they would increase pressure on staff to do more in future. They were surveyed on their plans for the next five years, and, while the number who said they would increase prices stayed the same, there was a “noticeable shift is the reduction in the share of firms expecting to take lower profits, dropping from 29% to 18%,” according to the report.

“This is unsurprising, as most businesses would not be expected to plan to be less profitable in the long run,” the report said. The number of firms that said they would ask workers to do more rose from 16% to 26%.

Here is that chart:

Brexit is also likely to have an effect on the National Living Wage. The plan is to raise it to £9 an hour by 2020, depending on wage growth forecasts.

If the UK fails to negotiate good trade deals and is cut off from the supply of international capital, salaries across the UK will suffer and the National Living Wage with them.

The Resolution Foundation plotted estimates of how different scenarios would affect wage growth in the UK and the chances of reaching the £9 target. It’s not good news whatever happens.

Here is the chart:

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