The National Living Wage of £7.20 will come into force from tomorrow across the UK for those aged 25 and over. This new minimum wage rate will amount to an automatic increase of 50p per hour for the coming financial year and it is set to rise to £9 per hour by 2020. There has been much discussion of how workers and businesses will be affected by the NLW and this is particularly important for Northern Ireland as one of the lowest paid regions in the UK. In last December's Quarterly Economic Observer we outlined the impact of the NLW among employees and across industries. Overall 13% of workers in Northern Ireland would see an automatic increase in pay from this Friday. However the lower age limit of 25 will exclude some 50,000 workers who will remain on the current minimum wage of £6.70 per hour until November. It also does not take into account those who are currently paid above £7.20 per hour who may see a knock-on increase in their wages.
Some 15% of female workers will see an automatic increase compared to only 9.7% of male workers, owing to the larger proportion of low paid female workers. The 25-35 age group will account for almost one third of all wage increases, but the NLW will also have an impact for older workers.
If we look at the industries where those employees work we can see that some sectors will be affected more than others. In the Hospitality sector, over one third of workers should get an automatic increase in wages along with 27% of workers in Administration and Support Services. While over one quarter of Retail workers will receive a wage increase, this sector will account for almost one third of all increases across the economy. The Health sector, which includes Residential and Social Care, will see 15% of its workforce receive a pay increase demonstrating that the NLW will be a challenge for the public sector as well as the private sector.
How businesses will react to this increase in the wage bill is unclear at this stage. Recent history suggests that business will either reduce costs elsewhere or take a dip in profits. The introduction of the National Minimum Wage in 1999 saw none of the price increases or job losses that were forecast at the time, however smaller businesses will find it harder than their larger competitors to absorb the cost of the NLW. While there are many challenges surrounding the impact of the National Living Wage these will most likely be outweighed by the boost to incomes that come with this policy. A sudden growth in pay packets will provide a significant stimulus for the economy and wage increases for low-paid workers tend to benefit the local economy even more. This means that the extra 50p per hour that goes out the door in increased wages will more than likely come back through the door in increased local spend, possibly more than once. Additionally the National Living Wage will help eradicate poverty among those in work and give a marginal boost to economic equality in Northern Ireland.