The document summarizes the potential impacts of introducing a National Living Wage in the UK. It finds that around 6 million employees, or one-in-four by 2020, will see their pay increase. Private sector firms and those in hospitality, retail, care and cleaning may face greater challenges due to higher percentages of the workforce being affected and larger increases to wage bills. While many firms can adapt through various means, the scale of the changes poses new difficulties, emphasizing the government's role in supporting businesses and a successful implementation through organizations like the Low Pay Commission.

1. Getting ready for a higher wage floor
Tackling Britain’s low pay and productivity challenge
Faisal Islam, Sky News
DavidNorgrove,LowPayCommission
Charlie Mayfield, UKCES
Rebecca Riley, NIESR
Abigail McKnight, LSE
Matthew Whittaker, Resolution Foundation
#livingwage / @resfoundation

2. Taking UpThe Floor
Exploring the impact of the NLW on employers
MattWhittaker
September 2015
@mattwhittakerRF
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3. 3
1. A quick recap
2. Measuring the impact on employers
3. Working towards successful
implementation
Taking UpThe Floor

4. A (very) quick recap of
what it is & who gets it
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5. 5
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 fromApril 2016 (for 25+)
– rate based on ‘bite’ not cash level
A quick reminder of what the NLW is (and isn’t)

6. 6
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

7. 7
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’
recommendation
But remains
around £1 short
of predicted
Living Wage
outside London

8. 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
8
With around one-in-four employees expected to have
their pay boosted by 2020

9. Measuring the potential impact
on employers
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10. 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
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The magnitude of the change – especially by 2020 –
is likely to raise new challenges for (some) firms

11. 11
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

12. 12
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

13. 13
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

14. 14
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

15. 15
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

16. 16
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

17. 17
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

18. 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)
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Private sector firms face larger impacts on average, but
public sector pay cap adds to the challenge for LAs

19. Working towards successful
implementation of the NLW
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20. 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
20
The NLW will have a modest impact on many firms, but
poses a greater challenge for some

21. 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
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The government has a clear role to play in ensuring the
NLW succeeds