Institute for Public Policy Research

Living wage study: Higher prices and cheaper overheads unsustainable

By Oli Gross

- Last updated on GMT

Living wage study: Higher prices and cheaper overheads unsustainable

Related tags Wage Employment Minimum wage

The national living wage (NLW) has had a disproportionate impact on low-wage hospitality sectors and encouraged employers to offset costs by reducing overheads, according to a study from the Institute for Public Policy Research (IPPR).

The minimum wage of £7.20 to workers aged 25 and over came into force this April, and while off-setting costs with higher prices and reductions in non-wage benefits and training will increase incomes, it is not sustainable in the long run, the study suggests.

Low productivity

IPPR claim the UK’s low wage sector is less productive than its peers in western Europe, due to low awareness of the benefits of productivity-boosting actions and limited motivation prior to the NLW to act given relatively low labour costs.

And the low-wage sector employs a third of the workforce but produces only 23% of the UK’s gross value added and is 29% less productive than the economy as a whole.

But the group’s research suggests the sector does not need invent new ways of doing things, as there is huge potential for UK firms to boost their productivity by adopting practices and technologies that already exist.

Boost funding

It suggests Government boosting funding into workplace organisation, job design, leadership and management through Innovate UK.

And local partners should be encouraged to prioritise low wage businesses when they bid into the Local Growth Fund.

Finally it suggested businesses establish degree apprenticeships for large employers to boost skills.

Key findings include:

  • Low-wage sectors are less productive than their equivalents in western Europe.
  • Workers in our low-wage sectors tend to be less qualified than their peers in Europe, while firms in the UK’s low-wage sectors are less likely to offer training to their staff
  • Low-wage sector firms invest less in innovation than both other UK firms, and firms within the equivalent sectors in Europe. In particular, low-wage firms have not fully adopted the available information and communication technologies
  • The UK’s low-wage sectors have an unusually high rate of business start-ups relative to other countries, but this does not translate into a higher proportion of high-growth businesses within those sectors

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