Business

Minimum wage rises 'hit profits, not jobs'

Waitress holding desserts Image copyright Getty Images
Image caption The hospitality sector has many staff on minimum wage levels

Employment levels have held up following a rise in minimum wage levels despite previous concerns raised by businesses, a report has said.

However, prices have risen in some areas to cover the extra salary costs, according to the Low Pay Commission.

Firms have accepted lower profits and restructured workforces, but think tanks have warned about the impact of future minimum wage rises.

The National Living Wage for those aged 25 and over stands at £7.83 an hour.

It will go up to £8.21 from next April. There are lower statutory minimum wages for younger workers, and a higher voluntary - but unofficial - living wage.


Minimum wage rates

  • National Living Wage - for 25-year-olds and over: £7.83 an hour, rising to £8.21 an hour in April
  • Minimum wage - 21 to 24-year-olds: £7.38 an hour, rising to £7.70 an hour in April
  • Minimum wage - 18 to 20-year-olds: £5.90 an hour, rising to £6.15 an hour in April
  • Minimum wage - 16 to 17-year-olds: £4.20 an hour, rising to £4.35 an hour in April
  • Apprentice rate: £3.70 an hour, rising to £3.90 an hour in April
  • Voluntary living wage: £9 an hour, or £10.55 an hour in London

When the National Living Wage was unveiled by the then-chancellor George Osborne in July 2015, there were concerns from business groups about the potential impact on jobs.

The CBI business lobby group described the wage rise as a "gamble".

The British Retail Consortium (BRC), which represents shops, said hundreds of thousands of jobs could go in the retail and hospitality sectors particularly. The former boss of Sainsbury's, Justin King, said that the National Living Wage would "destroy jobs".

However, in its latest report on the impact of the rates that have been set, Low Pay Commission chairman Bryan Sanderson said: "So far, the evidence suggests the National Living Wage has been successful in raising pay without causing unemployment, but employers have had to adjust in various ways."

He said that five million workers had received a pay rise in April who would not otherwise have done so without the National Living Wage.

The Low Pay Commission recommends minimum wage levels to the government.

The BRC said it welcomed the new 2019 rates, and pointed out that many employers paid above this level.


National Living Wage v real living wage

  • The National Living Wage is the legally binding hourly rate for workers aged 25 and over. It was set at £7.83 an hour in April 2018 and is reviewed every year just like the National Minimum Wage (for under 25s). It will rise to £8.21 from next April
  • The real living wage was devised by charity the Living Wage Foundation. It argues the government's National Living Wage is not high enough to meet workers' needs and encourages employers to adopt its more generous, independently-calculated rate

Mike Cherry, national chairman of the Federation of Small Businesses, also said that the majority of small firms were paying all their staff more than £7.83 an hour before this became the minimum rate in April.

"Of those who did see wage bills increase following April's rise, seven in 10 small business owners chose to reduce their profitability, absorbing those costs themselves. Roughly a third scaled-back or cancelled investment plans," he said.

"The impact of a rising rate will vary from sector to sector. Labour-intensive industries with fine margins like childcare, hospitality and retail find increases harder to manage."

A report earlier this year by the Institute for Fiscal Studies said that a rapid increase in the future level of the living wage could mean that more jobs were replaced by robots.

With the hourly rate set to top £8.50 per hour by 2020, the think tank said more jobs may be at risk of automation.

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