The announcement of the National Living Wage (NLW) in 2015 heralded a new era for minimum wages in the UK. The policy aimed to increase pay and productivity without harming jobs, while also reducing spend on benefits. This review collects the evidence on the NLW’s achievements from 2016 up to the start of the Covid-19 pandemic.
The review finds that while the NLW increased wages and did not reduce employment, the increase in earnings did not lead to higher incomes and did not measurably improve productivity. Nevertheless, the growth in earnings helped reduce regional pay inequality and contributed to shrinking gender and ethnicity pay gaps. After the introduction of the NLW, minimum wage workers were less likely to move employers but continued to progress into higher-paid roles at the same rate as previously.
Bryan Sanderson, Chair of the LPC, said:
As we continue to push the minimum wage towards its new target, it is important we learn the lessons of recent history. This review is a timely reminder of the policy’s achievements, as well as its limitations.
The NLW can be a judged a success in reducing pay inequality, and fears around job losses did not come to pass. Productivity improvements, however, were elusive and the impact on workers’ incomes was tempered by other factors.
The headwinds faced by businesses and workers alike are greater now than at any point since the NLW’s introduction. Today’s report emphasises the need for a balanced and flexible approach in supporting both, of which the minimum wage is an important, but not the only part.
The initial target of 60 per cent of median earnings for those aged 25 and over was achieved in April 2020. The LPC’s more recent recommendations are informed by a higher target of two-thirds of median earnings for all workers 21 and over by 2024.
Alongside the review, we are also publishing a more detailed paper on the impact of NLW on productivity.
In addition to the review we have published our first in-house research paper on the effects the NLW has had on wages, employment, and hours. It extends the analysis of Aitken, Dolton, and Riley (2018) to incorporate minimum wage effects up to 2019.
Minimum wages increased on 1 April 2022:
||Rate from April 2022
|National Living Wage
|21-22 Year Old Rate
|18-20 Year Old Rate
|16-17 Year Old Rate