Is the living wage hampering employment? WEDNESDAY, 18 MAY 2016

The new living wage came into effect on April 1st, meaning millions of people over 25 will now be earning a minimum of £7.20 per hour – rising from £6.50. A hourly rate set independently and updated annually by the government, the wage is calculated according to the basic cost of living in the UK.

Cited as good for families, offering individuals the opportunity to provide for themselves and their family, good for society by helping to reduce poverty, and good for business by allowing them to reap the benefits of increased productivity from their staff, on the surface, the living wage is a positive step forward. However a survey conducted by CBI highlighted the fact that many employers are concerned about the rising labour costs associated with the living wage.

It’s been well reported that Britain’s economy is showing signs of slowing down after a rather successful couple of years. Various factors have been blamed, however one significant change has been the introduction of the living wage.

When it was announced, employers from a range of sectors voiced their concerns over the effects it could have on their business. Small businesses and start-ups in particular are said to be the most vulnerable, with turnover often only just covering overheads and wages. Not being able to afford to pay for staff at the increased hourly rate is very much a concern. Potentially hitting thousands with redundancy, the living wage could actually have the opposite effect to what the government want. This could, in effect, cause a decreased amount of production, thus slowing down the economy.

Another potential worry with regards to the living wage is new recruitment. Even if employers can afford to keep staff on, they may not be able to afford to hire new staff at the increased rate. Such a steep rise – almost £1 per hour – can have a huge impact on businesses bottom line, so even if workloads are increasing, it may not be producing enough money to pay for a new employee at the set rate.

It’s possibly too early to tell whether the living wage is harming employment rates. After steep decreases in unemployment rates over the last five years, the number of those unemployed have seemingly plateaued over the last couple of months. Whether or not that has anything to do with the living wage is yet to be seen, however the next 12 months will be a telling tale for the UK economy and employment as a whole.

POSTED BY   AT  12:09