One in four expected to get National Living Wage earnings boost

3 Sep 15

Nearly a quarter of all employees are expected to benefit from the introduction of the new ‘National Living Wage’ rate from next April, according to a Resolution Foundation analysis.

The new rate was announced by Chancellor George Osborne in the summer Budget and will be set at £7.20, be paid to over-25s and implemented from next April. It is expected to rise to around £9 an hour by 2020.

In a report examining its impact, the think-tank said 3.2 million workers would gain directly from policy. The average annual cash gain will be £1,210 although it will be higher for those working full-time who are currently on the minimum wage. A further 2.8 million will benefit from what the think-tank called the ‘ripple effect’ as employers aim to maintain existing pay gaps between different workers.

Overall, the Resolution Foundation said around 23% of all employees – and three in ten female workers – would benefit either directly or indirectly from the wage rate.

The gains are forecast by the report to contribute to a modest narrowing of the gender pay gap, with the speed at which the gap narrows increasing by around 20% from 2014 to 2020.

The analysis also found that the impact of the NLW will vary across the UK. Yorkshire and the Humber will see the biggest uplift, with 28% of those working in the region expected to benefit. The East Midlands, West Midlands, and Wales will be similarly affected (all at 27%). The change will have least impact in London (14%) where pay levels tend to be higher.

Conor D’Arcy, a policy analyst at the Resolution Foundation, said the new rate represented 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.”

He added that, as typical wages are still only at their 2004 level in real terms, the case for boosting the wages of these workers is strong.

However, the pace at which the rate will increase over the parliament will move our labour market into “uncharted territory”, he stated.

“The 16 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.”

The report comes after trade union Unison warned that cuts to benefits announced in the Budget alongside the new minimum wage rate would more than cancel out the earnings boost for thousands of low-income households.

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