New year, new wage: implementing the National Living Wage in Scotland

The first week back at work after the new year is no one’s favourite, with the brighter, better spring weather still a long way off. But this year, thousands of low-paid workers across Scotland have even more cause to be impatient for the end of winter. From April, thanks to the National Living Wage (NLW) all employees aged 25 and over must be paid at least £7.20, a 50p jump from the National Minimum Wage (NMW). This is a major milestone in the UK wage floor’s history, but what will it mean for employees and employers across Scotland?

There’s much uncertainty as to exactly how large the effect will be but the Resolution Foundation estimates that by 2020, around half a million workers in Scotland – more than a fifth of the total workforce – will have seen some pay rise as a result of the NLW. It’s clearly a big deal for low-paid workers in Scotland as a whole, but some areas will be less affected by the NLW than others.

A smaller share of those working in Aberdeen (16 per cent), Edinburgh (17 per cent), Dundee (18 per cent) and Glasgow (19 per cent) are set to benefit than the national average. This is because employees working in these areas are less likely to be low paid. Higher living costs, particularly in the more expensive cities, may well cancel out some of the slightly higher pay these workers receive.

It’s in local authority areas with greater shares of low-paid workers that the NLW is likely to have its largest impact. By 2020, around one-in-three employees working in Clackmannanshire and Dumfries and Galloway are expected to feel a boost to their wages as a result of the NLW. Its important to note that these figures are based on where employees work, rather than where they live. Residents of Clackmannanshire, for example, may well be travelling into Stirling for work. It is employers in these parts of the country that are likely to face more of a challenge implementing the NLW.

The big unknown with the NLW is how employers will react, and what the will consequences be. Years of research into the NMW’s effect indicates that a legal wage floor hasn’t come at the price of jobs. Employers have instead opted for a mix of responses like reducing pay gaps between employees. However, the planned trajectory of the NLW takes us beyond the existing evidence base.

In order to start mapping these uncharted waters, the Resolution Foundation and the CIPD surveyed over 1,000 employers and found that, encouragingly, the most common response from firms is an intention to raise efficiency and productivity. But there is still much uncertainty – a quarter of respondents said they hadn’t yet decided how to react.

The NLW should be easier to implement in Scotland than in many other parts of the UK (a theme we’ll return to later this month in a comprehensive exploration of the Scottish labour market and living standards). But that shouldn’t make those responsible for ensuring the NLW is a success – the UK and Scottish governments, local leaders and businesses – complacent.

It’s crucial that employers and politicians come together to discuss how the NLW is likely to affect them and identify the areas and industries that are going to find it most difficult to absorb. The run-up to the NLW introduction in April, and with the Fair Work Convention due to publish its framework by the end of March, is an ideal opportunity to do this.

We also need to push beyond the NLW and think about what employers can do to reduce low pay in the long run. A renewed emphasis on skills, progression, management quality and the use of technology are key to this wider low pay agenda.