The Impact of the Introduction of the National Living Wage on Employment, Hours and Wages

Andrew Aitken (), Peter Dolton () and Rebecca Riley

No 501, National Institute of Economic and Social Research (NIESR) Discussion Papers from National Institute of Economic and Social Research

Abstract: In 2015 the UK government announced the introduction of a new ‘National Living Wage’ (NLW) that would apply to those aged 25 and above from April 2016. At a rate of £7.20, this represented a significant increase of 7.5% over the existing National Minimum Wage (NMW) rate. Previous research has generally found, with some exceptions, that the NMW has raised the earnings of low paid workers, without significantly affecting their employment opportunities. The relatively large increase in the wage floor with the introduction of the NLW, and plans to raise the NLW to 60% of median earnings by 2020, raises the possibility of detrimental effects on employment retention and hours worked. We use a difference-in-differences approach and data from the Annual Survey of Hours and Earnings to examine the effects of the NLW introduction and April 2017 uprating on employment retention and hours worked. Overall we find that recent NLW upratings have increased wages for the low paid with generally little adverse effect on employment retention. However, consistent with previous research, we do find some evidence of adverse effects on the employment retention rates of women working part-time. We also find evidence of a reduction in employment retention for some of the lowest paid workers in the retail industries.

Date: 2019-02
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