Autumn 2016 Report Key findings€¦ · OBR forecast March 2016 HMT median forecast Aug/Oct 2016 Bank of England indicative projection Aug 2016 14 Use median of HMT panel and BoE

November 2016

Low Pay Commission

1

Autumn 2016 Report Key findings

2

National Living Wage (25+)

£7.20

21-24 Rate £6.95

18-20 Rate £5.55

16-17 Rate £4.00

Apprentice Rate*

£3.40

The UK minimum wage in October 2016

Long-standing youth rates, set at a lower level than the main rate to reflect employment risks.

Apprentice Rate set at a discount to the 16-17 Year Old Rate to reflect employer training costs.

NLW – rate for workers aged 25 and over, creating a new age band for 21-24 year olds.

Five rates overall:

* Applicable in first year of an apprenticeship and any year for 16-18 year old apprentices.

3

Rate April/ Oct 2016

April 2017

April 2018

National Living Wage (25+)

£7.20 ? ?

21-24 Rate £6.95 ?

18-20 Rate £5.55 ?

16-17 Rate £4.00 ?

Apprentice Rate

£3.40 ?

LPC task for this report: recommend April 2017 rates & 2018 NLW indicative rate

But with different roles for the NLW and the other rates

Unchanged basis for recommendations on rates for under-25s and apprentices

4

…without

damaging their

employment

prospects

To help as many

low paid workers as

possible…

• Following the traditional basis of the NMW: to raise pay and prevent exploitation.

• Level based on affordability, not need.

• Goal of zero harm to employment.

5

1. Target: ‘ambition of 60 per cent of average earnings and an objective of £9’. LPC role is to plot the path.

2. Some job loss tolerance: The OBR forecast a 20,000-110,000 increase in unemployment by 2020 (vs 1.1m employment gains 2015-2021).

3. Stricter test for increase not to happen: ‘subject to sustained economic growth’.

Different basis for the NLW: target and more tolerance for employment loss

…subject to

sustained

economic growth

To recommend the pace of increase to

reach 60 per cent of median earnings by

2020…

(subject to sustained economic growth)

LPC set out its approach to the NLW in our Spring 2016 Report

We proposed: calculating the rate

putting NLW ‘on course’ for 60 per cent using the latest forecasts and assessing affordability;

a straight line bite path was most likely;

the projected on-course rate was £7.64 for April 2017 and £9.16 for 2020.

Three flexibilities in the NLW

2020 goal

A moving target, its value should adjust in line with pay.

The profile

Can front-load or back-load the path.

The brake

Increases are subject to ‘sustained economic growth’.

And for the other rates

We thought: remit requires more

caution; genuine labour market

differences that meant pay floor for younger workers should be lower, including 21-24s, and would likely increase more slowly than NLW;

NLW an upward pressure, and we needed to pay attention to the ‘gap’;

new calendar a downward pressure for 2017.

2015 21-24s 25-30s

Pay level £8.26 £11.01

NMW/ NLW ‘bite’

79% 59%

Coverage 11% 5%

Unemployment (not in FTE)

11% 6%

Inherent difficulty of early NLW recommendations compounded by the vote to leave the EU

8

• Limited evidence post-introduction of the NLW - one quarter of labour market data; no econometric research; little on relativities.

• Much more uncertainty -re growth, employment, pay and productivity following vote to leave the EU. Little hard evidence.

• New cycle - no recent OBR forecasts at time of decision

http://www.bing.com/images/search?q=national+living+wage&view=detailv2&&id=1634C22545945A55C78AC96921DEBE2E803C9576&selectedIndex=7&ccid=E/c0gSop&simid=608007730705140740&thid=OIP.M13f734812a2966b30728073932f15ff1o0

http://www.bing.com/images/search?q=vote+to+leave+the+eu&view=detailv2&&id=FB0601F39460D015FC1F63DFEFC732867EFC5A5F&selectedIndex=3&ccid=KtRqrFLP&simid=608043434775023116&thid=OIP.M2ad46aac52cff3a3c4f06c716895f1aco0

LPC showed in the spring: the NLW is ambitious

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

3,500,000

19

99

20

00

20

01

20

02

20

03

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04

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Nu

mb

er

of

wo

rke

rs

pa

id a

t o

r b

elo

w t

heir a

pp

lica

ble

N

MW

/NLW

ra

te (

5p b

an

d) Forecast NLW coverage

ASHE excluding supplementaryinformation

ASHE including supplementary

information

ASHE 2007 methodology ASHE 2011 methodology

Gains for workers: £680 in 2017. Pace: the relative increase for 25+s is the same 2015-2020 as 1999-2015. Scale: tripling of coverage by 2020.

Key question: rate adjusting down; was a straight-line path still affordable, or did we need to exercise

discretionary flexibilities?

EU exit influences the NLW via effects on growth, jobs and pay

10

Sustainable minimum wage increases depend on: Growth in

GDP Employment Pay and

productivity.

The effect of leaving the EU depends on its impact on these factors: • No immediate recession; • Consumer confidence, share

prices and business confidence fell and then recovered;

• Hiring intentions weakened but partly recovered;

• Pound fallen sharply; • Inflation likely to rise; • Much greater uncertainty –

overall, migration, fiscal position.

Weakening seen in growth forecasts available in October (didn’t have OBR Nov)

11

•Forecasts for 2016 and 2017 GDP growth, UK, 2012-2016

0.0

0.5

1.0

1.5

2.0

2.5

3.0

Feb

ruar

y 2

01

2

May

20

12

Au

gust

20

12

No

vem

be

r 2

01

2

Feb

ruar

y 2

01

3

May

20

13

Au

gust

20

13

No

vem

be

r 2

01

3

Feb

ruar

y 2

01

4

May

20

14

Au

gust

20

14

No

vem

be

r 2

01

4

Feb

ruar

y 2

01

5

Mar

ch 2

01

5

Ap

ril 2

01

5

May

20

15

Jun

e 2

01

5

July

20

15

Au

gust

20

15

Sep

tem

be

r 2

01

5

Oct

ob

er

20

15

No

vem

be

r 2

01

5

De

cem

ber

20

15

Jan

uar

y 2

01

6

Feb

ruar

y 2

01

6

Mar

ch 2

01

6

Ap

ril 2

01

6

May

20

16

Jun

e 2

01

6

July

20

16

Au

gust

20

16

Sep

tem

be

r 2

01

6

Oct

ob

er

20

16

2016 2017

EU Referendum

June 23

LPC Spring 2016 Report

NLW Announcement

Source: LPC estimates using HM Treasury Panel of Independent Forecasts: median of recent forecasts, UK, 2012-16.

• Outlook mainly affected in 2017 onwards, not 2016.

• Growth expected to be c.1-1.5% in 2017, not over 2%.

• Better than expected GDP data in October didn’t changed the shape significantly.

And in higher inflation

0

1

2

3

4

2013Q1

2013Q3

2014Q1

2014Q3

2015Q1

2015Q3

2016Q1

2016Q3

2017Q1

2017Q3

2018Q1

2018Q3

2019Q1

2019Q3

2020Q1

2020Q3

%

CPICPI - OBR forecast March 2016CPI - Bank central projection August 2016CPI - HMT independent median Aug/Oct 2016RPI

CPI

Latest data

12

• CPI inflation forecasts to be 2.1% to 2.5% in Q4 2017 and RPI 3.2%.

Source: LPC estimates using ONS data: CPI (D7G7), RPI (CZBH), quarterly, not seasonally adjusted, UK, Q1 2013-Q2 2015; Bank of England Inflation Report (2016); OBR (2016); and HM Treasury Panel of Independent Forecasts.

And in forecasts for unemployment

13

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

200

0 Q

4

200

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4

200

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4

200

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4

200

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4

200

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4

200

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4

200

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4

200

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200

9 Q

4

201

0 Q

4

201

1 Q

4

2012

Q4

201

3 Q

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201

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201

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4

201

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4

201

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201

8 Q

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201

9 Q

4

202

0 Q

4

Une

mp

loym

en

t ra

te (

pe

r cen

t)

ONS series MGSX OBR Nov 2016 forecasts BoE Nov 2016 forecasts

• Bank of England expected unemployment to rise by 0.5pp (200,000-250,00) in 2017, peaking at 5.5% in 2018 and 2019

• (Although well below post recession rates, and against backdrop of record employment growth)

And in forecast pay: expected to be 2.3% in 2017, down from 3-4%

-1.0

0.0

1.0

2.0

3.0

4.0

2013

Q1

2013

Q2

2013

Q3

2013

Q4

201

4 Q

1

2014

Q2

2014

Q3

2014

Q4

2015

Q1

2015

Q2

2015

Q3

2015

Q4

2016

Q1

2016

Q2

2016

Q3

2016

Q4

2017

Q1

2017

Q2

2017

Q3

2017

Q4

2018

Q1

2018

Q2

2018

Q3

2018

Q4

2019

Q1

2019

Q2

2019

Q3

2019

Q4

2020

Q1

2020

Q2

2020

Q3

2020

Q4

Whole economy average earnings growth

OBR forecast March 2016

HMT median forecast Aug/Oct 2016

Bank of England indicative projection Aug 2016

14

Use median of HMT panel and BoE to calculate the rate. In Feb 2016, thought pay would grow 19.1 per cent April 2016-October 2020. In Oct 2016, thought pay would grow 12.4 per cent over the same period.

Source: LPC estimates using: ONS AWE total pay (KAC3), quarterly, seasonally adjusted, GB, 2013-2016; OBR (2016); HM Treasury Panel of Independent Forecasts (2016), Bank of England (2016) assumptions and indicative projections.

Target NLW has therefore adjusted

15

2020 figure has adjusted from £9.35 when policy first announced… to £8.61 in our Autumn 2016 Report. 2016 figure has adjusted from £7.68… to £7.50. Implies 4.2% increase in 2017 to £7.50.

2016 2017 2018 2019 2020

Jul 2015 7.20 7.68 8.19 8.74 9.35

Feb 2016 7.20 7.64 8.12 8.61 9.16

May 2016 7.20 7.56 7.97 8.41 8.86

Oct 2016 7.20 7.50 7.85 8.23 8.61

7.00

7.50

8.00

8.50

9.00

9.50

10.00

National Liv

ing W

age

£

74p

Source: LPC estimates using ASHE April 2014-16, standard weights, UK; OBR (2015, and 2016) forecasts for hourly earnings; HMT panel of independent forecasts (2016); and Bank of England (2016)

Case for (additional) caution

16

Back-load or delay

• On course rate is a relatively large relative increase in pay – 4.2% vs 2-3% for other workers. Second biggest increase since 2006 – but at a time of high uncertainty and possible volatility.

• Large downward growth revision: GDP 1-1.5 per cent in 2017. • Unemployment forecast to increase in 2017. • £7.20 rate has been challenging for some sectors: competitiveness and

employment effects in convenience, horticulture, social care, childcare? • NLW has more progress than expected to 60 per cent goal. • Has pay adjusted down enough? Forecasts have persistently been too

optimistic and if this were the case again, the on course rate could accidentally frontload the NLW path.

• Delay would give more time to see what happens to the economy. • And help manage pressures in April 2017 arising from pensions automatic

enrolment (now covering small businesses) and the Apprenticeship Levy (affecting larger businesses).

Case for staying on course

17

At least the on-course rate

• The NLW remit has changed the burden of proof. • Economic growth remains positive. • Labour market performance is strong. Higher unemployment comes

against a backdrop of record employment and low unemployment. • No general evidence of negative employment effects from the introductory

rate of the NLW: exposed groups performing strongly. • Inflation set to rise, so protection needed against real pay cuts. • The on course rate has adjusted down 14p since March and by the same

proportion as growth – a third lower increase than expected in July 2015. • The adjusted pay forecasts look more aligned with other pay data than in

the past, so unlikely to accidentally frontload the path. • Lower increases now would mean sharper increases towards 2020. • In any event, the forecasts may be too pessimistic. Hard data since June

has surprised on the upside. • Can be more cautious in future decisions should problems emerge.

On balance, Commissioners recommended staying on course

18

• Overall: recommend 30 pence increase to £7.50 per hour – the on-course rate.

• 2018: HMT Panel/ Bank of England forecasts

imply a NLW within a range of £7.80 to £7.91.

• A material worsening in economic performance and prospects would lead us next year to consider recommending that the NLW should not increase relative to median earning, moving below a straight line path to 60 per cent, to safeguard employment.

• Highlighted pressures on sectors: social care, horticulture, childcare and small retail.

• 60 per cent of median earnings in 2020 will equate in cash terms to an NLW of £8.61, within a range of £8.50 to £8.73.

• Compares with 2017 pay forecasts around 2-2.5%.

• About 10 pence lower than in March.

• Increase pay for typical

minimum wage workers (26 hours) by £400 to £600 (f/t).

• Raises coverage by up to 390,000, from 1.6 million jobs (6.7%) in April 2016 to up to 2.0 million (8.3%) in April 2017.

Other rates: moderate increases

Ambition:

• Looking backwards saw very strong pay growth to April 2016 and significant falls in unemployment.

• Enjoy shelter of NLW.

Caution: • Looking forwards, are more

exposed to risks from any slowdown.

• are getting a second increase in 6m.

• 16-17s weaker than 18-24s; high underpayment for apprentices.

LPC recommendations for the

minimum wage

6m

12m On Oct

2015

Rate Oct

15

Apri

16

Oct

16

April

17

NLW £7.20 £7.50 n/a 4.2% n/a

21-24 6.70 6.95 7.05 1.4% 3.2% 5.2%

18-20 5.30 5.55 5.60 0.9% 3.1% 5.7%

16-17 3.87 4.00 4.05 1.25% 2.8% 4.7%

App

Rate

3.30 3.40 3.50 2.9% 4.5% 6.1%

How has Autumn Statement changed things?

The rate – slightly higher • OBR gets slightly higher NLW estimates

towards 2020. • Reflects higher forecast pay growth (our

estimates don’t change using Nov HMT Panel forecasts + BoE).

• Independent forecasts have been closer to out-turn in recent years.

The path – doesn’t change evidence • OBR more optimistic than HMT panel on

GDP growth and wage growth. • OBR GDP, wage and real wage

expectations are weaker than when NLW established in July 2015, but labour market predicted to perform as strongly.

Year LPC Report (Oct 2016)

OBR (Nov 2016)

2016 £7.20 £7.20

2017 £7.50 £7.50

2018 £7.85 (7.80 to £7.91)

£7.90

2019 £8.23 £8.30

2020 £8.61 (£8.50 to £8.73)

£8.80

Conclusions

• NLW a relatively large increase for 2017, but lower than previously expected in cash terms.

• Currently still expect the NLW to reach 60 per cent by 2020, but cash figure inevitably very uncertain (£8.50-£8.80?).

• Commissioners’ starting point remains following a rolling straight line bite path but the LPC will give consideration to recommending the NLW should not increase relative to median earnings next year should there be a material worsening in economic performance and prospects.

• In the absence of a change in relative performance of different age groups, the other rates are likely to increase more slowly than the NLW towards 2020.

• To inform future decision, we are particularly interested in evidence on employment effects and relativities.

Impact of the introductory rate of the National Living Wage

Early findings

Summary: the NLW raised pay but presents challenges

23

Area of impact We look at Messages

1. Overall: bite and coverage

• General scale of benefits/impacts

• Sharp increases • Gains for workers • Challenges in managing reach of

NLW into economy/ progression of workers

2. Pay effects • Spillovers up distribution • Pay compression • Spillovers down age

range • Pay consolidation • Underpayment/ non-

compliance

• Raised pay for NLW workers and more (large effects)

• Women/ part-timers benefit • And under-25s • Some pay consolidation reported

but can’t see it in data (yet?) • High frictional non-compliance

3. Employment effects

• Stakeholder survey evidence on hours and jobs

• Labour market data on hours and jobs

• Stakeholders in some sectors concerned

• Can’t see clear effects in early data

4. Competitiveness effects

• Stakeholder evidence on prices, productivity, profits

• Data on prices


• Prices up

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/ data


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Area of impact We look at Messages





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Introductory rate the largest ever cash increase in the minimum wage

• 7.5% increase in April 2016 or 10.8% year on year.

• Up to three times median pay growth.

• Main rate at highest ever real rate (vs typical wages 5-10% below CPI and RPI peaks).

• Also at highest relative rate (bigger than expected bite increase).

• Annual gains/costs per worker (26hrs) of £680 nominal, £590 real (CPI) or £390 (vs average earnings growth).

Median

up 3.1%

Mean up

4.1%

Bite

increase

of

3.3 ppt

(55.8% vs

52.5% for

£6.50)

£7.20 delivered a substantial increase in the bite, a steeper jump than the remaining path to 2020

44

46

48

50

52

54

56

58

60

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Bite

of th

e N

MW

/NLW

at th

e m

ed

ian

(p

er

ce

nt)

April Mid-year

60

56.4

55.8

52.5

Reflected in higher coverage: 6.7% of 25+ jobs in 2016, v. 4.3% in 2015

27

0

250

500

750

1,000

1,250

1,500

1,750

2,000

2,250

2,500

2,750

3,000

3,250

199

9

200

0

200

1

200

2

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3

200

4

200

4

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5

200

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6

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7

200

8

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2011

201

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201

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Work

ers

ag

ed

25

+ p

aid

at o

r b

elo

w th

e a

pp

lica

ble

NM

W/N

LW

(1

00

0s)

Bite of 60

Uprating

in April

2016

NMW uprating in October Uprating

in April

1999

Coverage rate and rate increase highest for the youngest & oldest age group (but NLW increasingly prime-aged workers)

28

0 5 10 15 20 25

25-29

30-39

40-49

50-59

60-64

65+

Total

Proportion of each age group covered by the NMW/NLW each year (per cent)

2015 Extra 2016 Extra 2020

Coverage in low paying occupations: a going rate?

29

0 10 20 30 40 50

Cleaning

Hospitality

Hairdressing

Food processing

Low-paying sectors

Textiles

Retail

Childcare

Social care

Storage

Transport

Leisure

Non-food processing

Office work

Agriculture

Total

Non low-paying sectors

Proportion of jobs in each sector covered by the NMW/NLW (per cent)

Coverage in 2015 Extra coverage in 2016 Extra 2020

Similar story for the bite: pressure on progression?

30

0 10 20 30 40 50 60 70 80 90 100

Cleaning

Hospitality

Retail

Hairdressing

Food processing

Childcare

Social Care

Textiles

Storage

Office work

Leisure

Agriculture

Non-food processing

Transport

All

NMW and NLW relative to median earnings of 25+ (per cent)

2015 2016 2020

Half regions/nations set to have ‘met’ 2020 target of 60 per cent - in 2016

31

0 10 20 30 40 50 60 70

East Midlands

Northern Ireland

Yorkshire & theHumber

Wales

North East

West Midlands

North West andMerseyside

South West

Eastern

Scotland

UK

England

South East

London

NMW and NLW relative to median earnings of 25+ (per cent)

2015 2016 2020

Local Authority RegionWorkers at or

below £7.50

West Somerset South West 20.8%

Torridge South West 20.0%

Rossendale North West 19.4%

West Devon South West 19.2%

Castle Point East of England 17.3%

North East Lincolnshire Yorkshire and The Humber 17.0%

Melton East Midlands 17.0%

East Northamptonshire East Midlands 16.8%

Richmondshire Yorkshire and The Humber 16.3%

Breckland East of England 16.0%

Local Authority RegionWorkers at or

below £7.50

Hart South East 2.3%

Surrey Heath South East 2.2%

Guildford South East 2.2%

Test Valley South East 2.2%

Oxford South East 2.1%

South Cambridgeshire East of England 2.1%

Mole Valley South East 2.1%

Spelthorne South East 2.1%

Runnymede South East 1.9%

City of London London 0.8%

But difference within regions as big as between

Estimated £7.50 impact (by workplace)

£7.50 coverage by workplace: some boroughs of London with high levels of low pay

33

Estimated £7.50 impact (by workplace)


34

Area of impact I look at Messages







compliance




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Stakeholder divided three ways

Supportive/ manageable:

• Employee representatives: supportive but NLW needs to be higher and won’t

compensate for benefits cuts.

• Some retail: majority of firms in BRC survey thought future path ‘about right’.

• Lower labour/turnover cost employers (eg, engineering) & professional services

firms).

Challenging now (and later):

• CBI: a ‘a real stretch’ and ‘out of step with pay growth in the lower-paying

industries and the economy as a whole’. Most affected sectors are: ‘generally

labour-intensive, low-margin and price-taking sectors where the challenge of

paying higher wages is compounded by little room to pass on increases in costs

to customers and limited scope to boost productivity in the near-term’.

• Social care, horticulture, small retail, textiles.

Worried about the path:

• Some (bigger) retail, hospitality, bars and restaurants, hairdressing.

35

Views on pay effects of the NLW

• Higher wage bills: a third (BCC) to a half (CIPD/FSB) of firms.

• Spillovers up the pay distribution (John Lewis) and down the age distribution (care firms).

• Some firms maintained differentials (ALMR, CBI), others flattened pay scales (UKHCA, BRC, ACS) – some said flattening was mainly in smaller firms (FDF).

• Reports of cuts to employee benefits: pay premiums, overtime, bonuses (CIPD, FSB, UKHCA, BRC, FWD), but unions reported these were overstated in coverage or predated the NLW (TUC, Unite). .

36

NLW has driven substantial increases in pay across the bottom of the distribution

37

0

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10

11

12

1 6 11 16 21 26 31 36 41 46 51 56 61 66 71 76 81 86 91 96

Gro

wth

in

ho

url

y p

ay (

pe

r ce

nt)

Percentile of hourly pay distribution, those aged 25 and over

Women particularly benefit

38

0

2

4

6

8

10

12

1 5 9 13 17 21 25 29 33 37 41 45 49 53 57 61 65 69 73 77 81 85 89 93 97

Perc

enta

ge g

row

th 2

015

-2016

Male Female

And part-time workers

39

0

2

4

6

8

10

12

1 5 9 13 17 21 25 29 33 37 41 45 49 53 57 61 65 69 73 77 81 85 89 93 97

Gro

wth

in h

ourly

pay 2

015

-2016 (

perc

enta

ge)

Full-time Part-time

6.0

6.5

7.0

7.5

8.0

8.5

9.0

0

2

4

6

8

10

12

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

Hou

rly p

ay in

20

15

(£)

Cha

nge

in h

ou

rly p

ay (

pe

r cen

t)

Percentile of hourly pay distribution, those aged 25 and over

Growth in hourly pay 2015 to 2016 (LHS) Growth in hourly pay needed to reach £7.20 (LHS) 2015 hourly pay (RHS)

1. Workers at the 9th percentile earned £7 an hour in 2015

3….But they actually saw far higher pay growth at 6.4 per cent

2…and so only needed 2.9 per cent wage growth to reach £7.20

Increases in hourly pay above what was needed to reach £7.20

But also some squeezing in hourly pay – highest in office work

41 (Sectors on right may have already compressed pay)

Younger workers: spillovers down the age distribution

0

1

2

3

4

5

6

7

8

9

10

11

12u

nd

er

6.0

0

6.0

0

6.0

5

6.1

0

6.1

5

6.2

0

6.2

5

6.3

0

6.3

5

6.4

0

6.4

5

6.5

0

6.5

5

6.6

0

6.6

5

6.7

0

6.7

5

6.8

0

6.8

5

6.9

0

6.9

5

7.0

0

7.0

5

7.1

0

7.1

5

7.2

0

7.2

5

7.3

0

7.3

5

7.4

0

7.4

5

7.5

0

7.5

5

7.6

0

7.6

5

7.7

0

7.7

5

7.8

0

7.8

5

7.9

0

7.9

5

8.0

0

Jobs h

eld

by w

ork

ers

aged 2

1-2

4 (

per

cent)

Gross hourly earnings excluding overtime (£)

2015 2016 42

Found no clear evidence of pay consolidation (in early data)

• No drop in the use or level of shift

premium pay or overtime in the data

for the latest year – although some

changes may not be present yet.

• Haven’t looked at all areas of pay

and benefits package – incentive

pay, pension contributions, annual

leave entitlement.

• Surveys and stakeholders argue

this hasn’t been the most popular

response among employers (and

predates NLW).

43

http://www.google.co.uk/url?sa=i&rct=j&q=&esrc=s&source=images&cd=&cad=rja&uact=8&ved=0ahUKEwiooJeorsTQAhXEmBoKHeIUBvQQjRwIBw&url=http://www.siobhainmcdonagh.org.uk/campaigns/staffallowancecuts.aspx&bvm=bv.139782543,d.ZGg&psig=AFQjCNE3XQ8oVDih_qB8LKoVwLPofo9v9w&ust=1480178910322054

Higher under-payment – frictional non-compliance?

• In April 2016, 480,000 cases

paid below the NLW – 2.0%.

But – NLW isn’t the legally

applicable wage until the

pay reference period that

starts after 1 April 2016.

• Adjusted data suggest

306,000 paid below £7.20.

• But comparing different

points of the year… start of

year underpayment? (and

not all underpayment is non-

compliance).

• Frictional non-compliance

still a problem.

44

April 2016

306,000 cases paid below the NLW

1.3% of cohort

19% of NLW coverage (Follows NLW introduction)

April 2015

160,000 cases paid below the NMW

0.7% of cohort

15% of NMW coverage (middle of NMW year)

Under-payment highest in hairdressing, hospitality, childcare, cleaning,

0 1 2 3 4 5 6 7

Hairdressing

Hospitality

Childcare

Cleaning

Transport

All low-paying industries

Social care

Office Work

Retail

Leisure

Storage

Employment agencies

All

Food processing

Agriculture

Non-food Processing

Textiles

Per cent

April 2015 April 2016


46








compliance











• Data on prices


• Prices up

More

certa

inty

/ data

le

ss c

erta

inty

/ data

Contrasting evidence on the labour market impact of the NLW

Aggregate labour market data

- No evidence of negative NLW

impact by different groups of

workers.

- Low-paying sector employment

and jobs growing. Changes in

some sectors (care, cleaning,

agriculture, hairdressing), and in

micro firms.

- Premature for strong conclusions –

one quarter data post

implementation/ 4 quarters post

announcement - will continue to

monitor.

Stakeholder and survey evidence

indicated:

- In some sectors:

- Hours reductions;

- Slower job growth;

- Small number of redundancies.

- Horticulture, convenience stores,

textiles.

- But hard to establish the absolute

magnitude of these effects.

Employer surveys on effects of the NLW – how big is big?

48

100%

32%

74%

67%

34%

12%

6%

9%

47%

3%

14%

45%

7%

8%

46%

17%

27%

6%

11%

5%

6%

57%

47%

20%

17%

51%

30%

28%

18%

7%

12%

8%

3%

47%

20%

11%

8%

52%

54%

9%

13%

12%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

% affected byNLW (raisedwage bills)

absorbed /lower profits

reduceddifferentials

increasedprices

productivity reduced hours reducedrecruitment

reducedemployment

ACS BCC Resolution Foundation CIPD NFU FSB BRC NHF

LFS data: exposed groups outperformed comparators (apart from men and women)

Source: LPC estimates based on LFS microdata,, UK, Q2 2015- Q2 2016 – not seasonally adjusted.

49

0.0 0.5 1.0 1.5 2.0 2.5

Men

Women

White

Ethnic minorities

Withqualifications

No qualifications

Not disabled

Disabled

UK-born

Non-UK born

Change in employment rate Q2 2015 to Q2 2016 (percentage point)

Similar story across different age groups

Source: LPC estimates based on LFS microdata, UK, Q2 2015- Q2 2016 – not seasonally adjusted.

50

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

16-24 25-29 30-39 40-49 50-59 60-64 65+

Ch

an

ge

in

em

plo

ym

en

t ra

te Q

2 2

01

5 to

Q2

20

16

Change in employment rate Q2 2016 to Q2 2015

Growth in hours and employment across all firms sizes – except micro firms

Source: LPC estimates based on LFS microdata, quarterly, four-quarter moving average, UK, Q1 2016 - Q2 2016.

-0.4

-0.2

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

All Micro Other small All small Medium-sized Large

Perc

enta

ge c

hange

Employment Hours

51

Employment and hours in low-paying sectors growing robustly, but fell in cleaning, food processing, social care

Source: LPC estimates based on LFS microdata, quarterly, four-quarter moving average, UK, Q2 2015 - Q2 2016.

52

Sector 2016 Q2

(percentage change on previous year)

Employment Hours

Agriculture, forestry & fishing 1.5 -2.3

Childcare 3.7 4.3

Cleaning -6.0 -4.1

Employment agencies 11.9 14.1

Food processing -2.8 0.1

Hairdressing 0.4 -3.8

Hospitality 1.3 2.3

Leisure, Travel & Sport 3.1 3.0

Retail 2.7 2.5

Social Care -1.7 -1.7

Textiles & clothing 28.5 25.5

Other sectors 1.4 1.3

All low-paying sectors 1.4 1.5

Whole economy 1.4 1.4

General growth on employee jobs, but falls in hairdressing, agriculture and homecare/ childcare

Source: LPC estimates based on ONS employee jobs series (JOBS03), not seasonally adjusted, GB, 2008-2016. 53

Change on June 2015 Change on June 2014

000s % 000s %

All industries 349 1.2 887 3.2

Non low-paying industries 287 1.5 647 3.5

All low-paying industries 62 0.6 240 2.5

Consumer services 51 0.8 284 4.9

Retail 21 0.6 55 1.7

Retail (excluding motor) 4 0.1 50 1.8

Hospitality 40 1.9 97 4.8

Leisure, travel and sport 11 2.1 26 5.1

Hairdressing -21 -13.6 -10 -7.0

Business-to-business 12 0.8 267 21.9

Cleaning 3 0.4 14 2.0

Employment agencies 9 1.2 34 4.7

Trade 17 2.6 -23 -3.4

Food processing 8 2.3 16 4.6

Agriculture -3 -1.6 -2 -1.1

Textiles, clothing 12 12.0 24 27.3

Government-funded -18 -1.1 209 15.1

Residential care 24 3.1 82 11.6

Domiciliary care/childcare -42 -5.0 -96 -10.6

Summary sectoral labour market data

• Low-paying sectors generally had strong performance –

textiles, food-processing, employment agencies. But:

• Social care - hours and employment down; employee jobs

down in domiciliary care/childcare (up in residential);

• Cleaning – Hours and employment down, jobs increased;

• Agriculture – Hours and jobs decreased, employment;

increased

• Hairdressing – Hours and jobs decreased, employment

increased.

• Very early data, so cannot draw strong conclusions

54


55








compliance











• Data on prices


• Prices up

More

certa

inty

/ data

le

ss c

erta

inty

/ data

Stakeholder views on competitiveness

• Reduced profits accepted by many firms (a third, CIPD, to three fifths, FSB).

• Others increased prices (a third, RF, BRC, FSB) . But for some this is not possible (social care; retail?).

• Reductions/delays in investment in some sectors (a third, NFU, to two fifths ACS).

• Lots of interest in productivity increases (a quarter of firms, CIPD) but few concrete examples and employment effects unclear.

• Threat to viability of firms in some sectors? Convenience, care, horticulture.

– But only isolated examples of business failures so far.

– And some sectors growing (eg, convenience). 56

‘Minimum wage goods’ have generally seen greater price increases than average

57

Q2 Q3

All items 0.3 0.8

Restaurants & cafes 2.2 2.4

Canteens 1.4 1.6

Cleaning, repair and hire of clothing 2.2 2.4

Domestic and household services 3.7 3.3

Hairdressing 2.0 2.2

All items 1.4 1.9

All items excluding mortgage interest payments 1.6 2.0

Restaurant meals 2.2 2.4

Canteen meals 1.5 1.7

Take-aways and snacks 1.9 2.0

Beer on sales 2.2 2.3

Wine & spirits on sales 3.0 3.1

Domestic services 3.1 3.1

Personal services 3.1 3.3

Net sector 1.2

Hotels -0.7

Canteens & catering 1.0

Employment agencies -1.2

Industrial cleaning 2.0

Commercial washing and dry cleaning 1.0

2015-2016

CPI

RPI

SPPI


• Sharp increase in coverage and bite, with particular areas

and sectors affected, and set to grow further to 2020.

• Substantial increases in pay for NLW workers, and those

earning above the rates. Women and part-timers particularly

benefited, as well as some under 25s.

• Some squeezing of differentials.

• Pay consolidation? No significant drop in use of premiums or

overtime in aggregate data.

• Higher non-compliance (at the beginning of the NLW year?).

• No clear impact on employment/hours yet, with the little

aggregate data we have, but too early to be confident.

• Firms reported range of competitiveness effects -

aggregate data fits with increasing prices.

• Sectoral pressures: social care, horticulture, childcare,

cleaning, hairdressing, convenience, textiles.

58

Documents

Autumn 2016 Report Key findings€¦ · OBR forecast March 2016 HMT median forecast Aug/Oct 2016 Bank of England indicative projection Aug 2016 14 Use median of HMT panel and BoE