National Living Wage: Employers respond by raising prices or reducing profits instead of cutting jobs, report says

Employers in the country have responded to the National Living Wage (NLW), either by increasing their prices or scaling down their profits, instead of cutting jobs, according to Resolution Foundation, an independent British think tank.

The foundation's report, which was published on Monday (11 July) is based on a survey of 500 business organisations, carried out by Ipsos MORI, a UK market research organisation. It shows how they responded to NLW, implemented on 1 April which requires businesses to pay a minimum hourly wage of £7.20 (€8.44, $9.33) to all employees aged 25 and above.

According to the survey, which was carried out between the 6th and 16th of June, 36% of the respondents said they had responded to the NLW by increasing prices, while 29% said they had lowered their profits. These two have been found to be the most popular short-term measures taken by businesses. The report says: "While this 'suck it and see' approach is understandable in the short-term, many firms will need to adjust their action in the medium-to-long term."

The survey also notes that 15% of the companies have invested more in training while 12% have invested more in technology, since the introduction of NLW. The report adds: "Making these productivity-enhancing approaches a more common response to the NLW will help to maintain the success of the policy in the coming years, and help tackle the UK's wider productivity problems."

Referring to Brexit, the report says the decision would affect the labour market going forward apart from significantly increasing the level of uncertainty about the future earnings outlook for businesses. It further says that the post- Brexit uncertainty "could reduce real-terms value of NLW by up to 40p an hour in 2020".

The think tank notes that the food manufacturing and domestic services businesses would be most affected as they largely depend on migrant labour from the EU.

Conor D'Arcy, Policy Analyst at the Resolution Foundation, said: "Encouragingly, evidence of workers seeing their hours cut or even losing their jobs has so far been relatively limited. The challenge now is for firms to continue to respond positively to the National Living Wage, particularly by raising productivity."