Employers must meet productivity challenges of paying Living Wage ⁰

A quarter of private sector employees will be directly affected by the implementation of the new National Living Wage, (NLW) over double the proportion of public sector employees. The research, conducted by the Social Market Foundation in partnership with Adecco Group UK & Ireland, warns these employers will need to overcome significant productivity challenges in order to cope with the cost. The NLW cut-off at age 25 means businesses will be faced with potential discrepancies in wages across their younger workforce. While almost a fifth (18 percent) of employees who will benefit from the NLW are younger workers surprisingly, workers aged 50 or over will make up a third. Part-time workers make up around half of the workforce in severely affected workplaces. The research also found that the workplaces severely affected by new National Living Wage tend to have low-skilled employees and are much less likely to offer in-work training.

Retail, wholesale and hospitality sectors are among the most severely affected by the NLW. The new research highlights that, for 40 percent of workplaces severely affected by the NLW, financial performance is a key factor in determining pay, while 47 percent have traditionally linked salary decisions to the minimum wage. This raises important questions about how these organisations can equip themselves and their staff to cope with rising wage bills.

28 percent of workers who will benefit from the new NLW are in elementary occupations which require no formal qualifications, including labourers and cleaners, while caring, leisure and other services and sales are also significantly affected. Four in ten of those who benefit from the NLW have no qualification or are only educated to GCSE level.

Significantly, workplaces severely affected by the new rate are much less likely to provide ongoing training and development opportunities to their staff, with 46 percent providing no training at all, or providing training to less than a fifth of their experienced staff in a six month period. The prevalence of part-time workers may also present particular challenges to businesses because the case for investing in their skills may be weaker than for full-time workers.

Commenting on the publication of the research, Nida Broughton, Chief Economist at the Social Market Foundation, said: “The low stock of skills amongst those affected, and the relative lack of access to in-work training, means that businesses and the Government will have to act to make sure that workplace productivity rises alongside the new regulated wage. If businesses can increase productivity there is less likely to be a risk of higher unemployment as a result of the introduction of the NLW, and workers will be more likely to benefit.”