What Does the National Living Wage Mean for the Construction Industry?

National Living Wage

On July 8, 2015, George Osbourne, Britain’s Chancellor of the Exchequer, announced the implementation of a National Living Wage. Beginning in April 2016 an hourly wage of £9.15 in London and £7.85 in the rest of the nation will be mandatory for workers over 25, and these figures will each rise by more than £1 per hour by 2020.

Will the Increase Affect the Construction Industry’s Lowest Paid Workers?

According to the PayScale website, while 10% earn £6.10 and another 10% earn £10.27 per hour, UK construction labourers earn, on average, £7.70 per hour. This means the National Living Wage increase outside London will not represent a substantial pay boost for these workers. Based on these figures, a labourer working 8 hours daily will earn a bit more than an extra £1 per day—even less when take-home pay is considered—or about enough to buy a daily 500 ml Pepsi or a Mars bar and crisps at Sainsbury’s. However, the £312 yearly increase is enough for a new washing machine or, for two working partners, new vinyl flooring in the kitchen.

What Will Be the Regional Impact?

According to the National Endowment for Science, Technology and the Arts (Nesta), 6 million employees will see larger pay cheques because of the National Living Wage. However, even when the higher rates take effect in 2020, take home pay will rise by only about £20 per week or less. Because low paid workers lose 65p of the Universal Credit welfare benefit for every additional £1 of income, by 2020 their increased pay is likely to average only about £8 a week. Women and workers in their late twenties will be most likely to benefit, but because these two groups tend to work fewer hours, their weekly wage increases will probably be smaller. Nevertheless, the additional income will benefit local businesses throughout the UK as working residents have more money to spend or to use for paying down debts.

Will There Be Only a Slight Increase to the End Employer?

According to the KPMG accounting firm, costs of the National Living Wage will vary widely from one employer to another. For firms with a small proportion of low-paid labourers, the wage-bill increase will be only about 1%, but for firms with a high proportion of these workers (such as fruit pickers, shelf packers, check out workers, and food services employees), wage-bill increases may be higher. However, cost-benefit analyses conducted in 2012 and 2013 by the Institute for Public Policy Research and the Resolution Foundation suggest the typical wage bill in industries as diverse as food production, construction, and banking will rise by less than 1% because of the National Living Wage.

Will This Increase Make a Real Difference for Those Living in London?

A report from the Centre for London predicts the National Living Wage will probably not result in significant job losses in London. While the Office of Budget Responsibility predicts as many as 60,000 lost jobs nationwide, the Centre for London believes the majority of these will be outside of London. Indeed, the Centre refers to job-loss potential in London as “negligible” because of “very different economic circumstances that operate in the capital.”

Conclusion

In the face of warnings about the dire impact of the National Living Wage, organizations such as those cited above believe extreme claims about negative economic affects should be put into perspective. Nesta points out, “Similar fears about unemployment greeted the introduction of the National Minimum Wage in 1999,” which in reality had a positive impact on incomes without wreaking havoc on businesses. It is therefore reasonable, according to Nesta, to believe the same will be true when the National Living Wage is implemented in April.

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