• Productivity ‘key to meeting national living wage challenge’, says CIPD report

  • 25 Feb 2016
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Minister suggests new threshold will spur businesses to greater efficiency

The introduction of the mandatory national living wage (NLW) in April will force businesses to confront their productivity issues, a CIPD report has said.

However, the report warned that there appears to be starkly different levels of readiness among employers ahead of the NLW, and many still fear jobs will be lost in the immediate aftermath of its introduction.

The report, Weighing up the wage floor: Employer responses to the national living wage, surveyed more than 1,000 employers to reveal that almost a third (32 per cent) of larger firms thought an increase in productivity would be among their main responses to the wage, which is set at £7.20 an hour for over-25s. 

Among smaller businesses, however, an acceptance of lower profits was more widespread than a focus on driving productivity.Speaking at an event to launch the report, which was produced in partnership with the Resolution Foundation, Nick Boles – minister of state for skills and equalities – said the NLW was a way to induce improvements in output and end the “long, entrenched British disease of low productivity”.

Boles said the Conservatives had opposed the original introduction of a minimum wage in 1999 because it wasn’t convinced it was a sensible economic measure. The party had since come to “see it as a success”, he said.

Boles expects the NLW to bring similarly widespread benefits: “It isn’t just the case that productivity increases flow from investments in technology and skills, which lead to pay increases. It can also be the case that pay increases can prompt employers to make investments that produce increases in productivity. It’s time for employers in all sectors to make that investment.”

Mark Beatson, CIPD chief economist, cautioned that not all productivity gains were the same. It would be a “long, hard struggle” to raise productivity in some sectors, he said, which would require improvements in knowledge, capability and leadership.

This was particularly pertinent, said Beatson, to the long-term costs of the NLW, which will be set at 60 per cent of the median national wage and is forecast to reach £9.35 by 2020.

“Many organisations have focused on the £7.20 and getting that in place, but what happens beyond that? If a minimum wage leads to greater unemployment because workers have been priced out of a job, that won’t be seen as an overall gain, even if there is an increase in productivity,” Beatson said.

The event also heard concerns from a range of employer representatives about the fallout from the NLW. The Federation of Wholesale Distributors, which represents retail businesses employing 70,000 people, said 20 per cent of its members were planning to cut jobs as soon as the wage was introduced.

The National Farmers Union suggested British fruit and vegetables would become a thing of the past as wages in the agriculture sector become unsustainable. 

And Michael Mealing, employment law chairman of the Federation of Small Business, warned that the after-effects of the NLW would only be felt further down the line. He said: “Our members think it’ll be future recruitment they look at much more carefully, rather than an immediate reduction in headcount. The effects of an extra 50p per hour in April will be negligible, but the problem will be cumulative.”

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  • More under 25s will be employed after April

  • How do organisations improve productivity? By improving the quality of their learning & learning transfer and the impact of their managers on employee engagement throughout the organisation. People need to be well-trained and motivated in order to improve productivity. What is likely to happen as confidence is dented by current stock market levels, lack of growth and the EU? Backward thinking organisations will start to cut the development of their L&D and managers to 'save money'.