Information from the Resolution Foundation briefing ‘Rising to the Challenge’:

While broadly welcomed by business, the introduction of the National Living Wage (NLW) has sparked some concerns about affordability and prompted discussions around likely employment responses, especially in lower-paying sectors where the wage increase is set to bite hardest. It will be some time before we have the hard data that lets us assess definitively the impact of the NLW across the economy. However, by accessing comprehensive and timely pay data from adult social care providers in England we can consider how the implementation of the NLW has played out to date in one of the key low-paying sectors.

In this note we focus on those firms that report fully implementing the NLW to assess how social care providers have acted both in relation to those legally eligible for the increase, and in relation to their other staff. While in many ways the sector is distinctive, we believe that the response in social care offers wider insights on how businesses may be dealing with the implementation of the NLW across the economy as a whole.

  • There is no evidence that working hours have been reduced to offset NLW costs. Average hours for workers previously paid below the NLW have risen very slightly faster than the increase in hours for higher-paid workers
  • Social care providers have overwhelmingly passed the benefits onto their staff aged under 25. Over four-fifths of under-25s previously below the NLW are now paid £7.20 or above
  • There is evidence of wider ‘spillover’ effects across all age groups: Average pay for workers aged 25+ who were previously below the NLW increased by 9.2 per cent following its introduction. That’s over one third higher than the increase providers had to offer in order to just satisfy legal minimums. And across the workforce as a whole, providers have invested more than twice as much in raising pay over this period than if they had only satisfied NLW requirements and nothing more. Not all of this will directly relate to the NLW as pay tends to rise over time, but it appears likely that it has played an important role here
  • However, despite these positive wider effects, there is clear evidence of increased ‘bunching’ of pay. One third of the workforce is now paid the top adult minimum wage rate of £7.20, up from one quarter during June-September 2015 when the top adult rate was £6.50. This bunching raises concerns about opportunities to progress within the sector, and increases the risk of non-compliance when time not covered by contracted pay rates but legally covered by minimum wages is accounted for
  • Rates of non-compliance, as well as the impact of the NLW on overall employment levels, are areas that we are not able to explore directly in our analysis, and so on many important questions the picture remains unclear

» Read full Resolution Foundation briefing ‘Rising to the Challenge’