Jobs protected as prices and profits take the early squeeze from National Living Wage, says Resolution Foundation

Employers have responded to the introduction of the National Living Wage (NLW) in April 2016 by raising prices or reducing profits rather than cutting jobs, according to a new report by the Resolution Foundation. But it warns that more will have to look at productivity-enhancing measures in the coming years.

• 35% of businesses say the NLW has increased their wage bill this year, though only 6% reckon it had to a ‘large extent’.
• 16% of firms expect the NLW to increase their wage bill at some point in the future.
• Of those firms affected by the NLW, the most popular short-term action taken has been to increase prices (36%), followed by taking lower profits (29%).
• 15% of firms say they have already invested more in training, and 12% report having invested more in technology.
• Among those employers whose wage bill has increased, 14% say they have used fewer workers, offered fewer hours to staff or slowed recruitment.
• 8% say they have reduced aspects of the reward package, such as paid breaks, overtime or Bank Holiday pay.
• Encouragingly, a lower proportion of all firms plan to take these approaches over the next five years.

Conor D’Arcy, Policy Analyst at the Resolution Foundation, said:

‘The evidence so far is that firms have absorbed some of the impact on their wage bill, while passing on a share of those rising costs to consumers through higher prices. Encouragingly, evidence of workers seeing their hours cut or even losing their jobs has so far been relatively limited. The challenge now is for firms to continue to respond positively to the National Living Wage, particularly by raising productivity. Brexit is likely to reshape the landscape in which many low-paying sectors operate. This means that the expertise of the independent Low Pay Commission is more important than ever, and ministers should carefully heed their advice.’

The survey of 500 businesses was carried out by Ipsos MORI in the weeks running up to the EU referendum. Interviews were conducted with the main financial decision-maker in the organisation. For more information, please click here.