Recent substantial increases in the UK's National Living Wage (NLW) have not resulted in a noticeable decline in employment, according to a new analysis by the Institute for Fiscal Studies (IFS). The think tank's report examined the effects of the minimum wage, which has seen considerable growth over the last decade, particularly since the introduction of the NLW in 2016.
Between 2015 and 2024, the NLW for those aged 23 and over rose by 30% in real terms, a much faster rate than the average wage growth across the economy. This rapid increase was driven by the government's target to reach two-thirds of median earnings, a goal achieved in April 2024. The IFS study indicates that this policy has significantly boosted the incomes of low-paid workers, with their earnings growing faster than those of higher earners.
Despite concerns often raised about minimum wage hikes leading to job cuts as businesses face higher labour costs, the IFS found little evidence to support this in the UK context so far. The report suggests that employers have largely absorbed these increased costs through various means, potentially including reduced profit margins, higher prices, or increased productivity.
However, the IFS cautioned that while past increases have not caused widespread job losses, future rises could pose a greater risk to employment. As the minimum wage continues to climb relative to average wages, the ability of businesses to absorb these costs without impacting staffing levels may diminish. The report highlights the importance of carefully monitoring the economic landscape as the minimum wage continues to evolve.
The findings offer a nuanced perspective on the long-debated economic impact of minimum wage policies, suggesting that the UK's approach has so far managed to lift the earnings of the lowest-paid without significantly harming overall employment figures. This contrasts with some economic theories that predict a direct trade-off between higher minimum wages and job availability.