National Living wage will harm both employers & low-skilled employees


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NLW estimated to result in the equivalent of 60,000 fewer employed by 2020

Ahead of the implementation of the National Living Wage tomorrow, Ryan Bourne, Head of Public Policy at the Institute of Economic Affairs, said: 

“Government ministers have lamented the potential loss of thousands of jobs in the steel industry. Ironically, today they celebrate the introduction of their National Living Wage, which their own estimates suggest will result in 60,000 fewer people employed by 2020. 

“In instituting such huge wage increases, the Chancellor is undertaking a risky experiment with people’s livelihoods. Low-skilled, vulnerable workers will find it more difficult to find entry-level jobs providing much needed experience, and firms in competitive markets such as retail, pubs and social care are likely to react by slashing other in-work perks, reducing hours or investing in labour-saving technologies.

 “The implementation of the NLW fundamentally overhauls the wage-setting framework in the UK. Whilst the national minimum wage was introduced to combat perceived exploitative pay, the NLW arbitrarily pegs the wage to create a more equal distribution.  Whilst the Low Pay Commission historically set the minimum wage seeking to avoid job losses, the NLW has reduced them to a body monitoring the effects of wage-setting by the Chancellor of the Exchequer, who has shown he is willing to tolerate fewer jobs for higher pay for others. 

“This politicisation is extraordinarily troubling. The new framework means close to 20% of the private sector workforce will have their wage determined by government. This dynamic makes it extremely unlikely future Chancellors would oversee the slashing of the NLW in a recession, despite the supposed long-term link to 60% of median earnings. The impact of this on employment in tough times could therefore be particularly pernicious.”

Notes to editors: 

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Further Reading:

The mission of the Institute of Economic Affairs is to improve understanding of the fundamental institutions of a free society by analysing and expounding the role of markets in solving economic and social problems.

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