Firms raise prices in response to National Living Wage

18 July 2016

The introduction of a National Living Wage (NLW) in the UK has not lead to job losses, a report released to mark 100 days of the new policy has said. 

However, the report released by the Resolution Foundation, a think tank, said the most common response by businesses affected was to raise prices.

The NLW came into force on 1 April and increased the minimum wage for over 25-year-olds by 50p to £7.20 an hour. Before the policy came into force there were concerns that the increase in labour costs would cause employers to make redundancies.

Combining the limited economic data available for the last three months with a survey, the Resolution Foundation concluded “reduced employment does not appear to be the primary response employers make to a rising wage floor”.

In a survey of 500 businesses counducted for the Resolution Foundation by Ipso MORI, 36% of respondents said they would increase prices and 29% said they would accept lower profits to manage additional labour costs the report said. Only 15% said they would use less labour.

The report found industries likely to be affected by an increase in minimum wage – hospitality, healthcare among others – experienced “a broadly flat picture for employment in lower paying sectors… in contrast to continued growth in middle and higher paying industries”.

However the report said "isolating the NLW's role" in employment rates was "not straight forward".

Uncertainty before the Brexit referendum was likely to be just one factor leading businesses to delay taking investment and employment decisions.

The report said available inflation data does show price rises in some sectors.

“While there was little evidence of overall inflation being higher, prices in industries most dependent on minimum wage workers including takeaways, hotels and domestic services, did rise considerably faster than higher-paying sectors,” the report said.

The Resolution Foundation estimates 4.5m employees will benefit from the living wage this year, and roughly 6m people would be an average of £760 a year before tax by 2020. 

“We cannot predict precisely how employers will move forward as the NLW increases further, especially with the uncertainty surrounding the UK’s departure from the EU, our survey suggests that lower employment represents the primary strategy for only a handful of employers," the report said.

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