The UK’s experience with the National Living Wage

In the early months of 2016, the UK economy faced a significant disruption, not just due to the Brexit referendum that unfolded later that year, but also because of the implementation of the National Living Wage alongside the existing National Minimum Wage. For those outside the UK, the National Living Wage is a higher minimum wage applicable to workers aged 21 and above, while younger employees can be paid under this threshold as the National Minimum Wage.

Consequently, older workers are subject to a higher minimum wage, referred to as the National Living Wage, which can be somewhat counterintuitive. Additionally, there exists a non-compulsory Real Living Wage, set even higher by the Living Wage Foundation, though it will not be discussed further. The introduction of the National Living Wage on April 1, 2016, resulted in a substantial wage increase of 7.2%.

Initially set at £7.20 ($10.26) per hour, it has since risen to its current rate of £12.21 ($16.36) per hour. Throughout history, businesses, particularly those in low-wage sectors such as retail, hospitality, and healthcare, had voiced concerns that this higher minimum wage would lead to increased unemployment and hinder job growth.

The Office for Budget Responsibility at the time projected that it would result in the loss of 60,000 jobs and a 0.2 percentage point rise in unemployment. Pinjas Albagli and his colleagues from the London School of Economics examined the impact of the National Living Wage on the job market ten years after its introduction. They analyzed the change in full-time employment within low-wage industries.

The findings revealed that, despite the introduction of the National Living Wage and the subsequent Brexit shock, the UK witnessed a slight increase in full-time employment, ranging between 0.3 and 1.0 percentage points.