Pay of lowest earners rising four times faster than an average worker’s this year

National Living Wage means pay growth for lowest earners will be 50 per cent faster than average wage growth over the parliament

The pay of minimum wage workers will rise four times faster than average earnings this year, according to new analysis published today (Sunday) by independent think tank the Resolution Foundation in advance of the National Living Wage (NLW) being introduced later this week.

The forthcoming 50p hourly boost to wages from the NLW comes off the back of the 20p increase in the National Minimum Wage last October, resulting in a 10.8 per cent pay increase from 1 April 2015 to 1 April 2016. This rapid increase outstrips the average increase in hourly earnings over the same period of 2.7 per cent.

The new RF analysis shows that this trend is set to continue across the parliament as the NLW moves towards £9 in 2020. Between 2016 and 2020, the average annual increase for those working on the wage floor is set to be 5.7 per cent, compared to projected average earnings growth of 3.7 per cent over the same period.

The NLW will, at £7.20 per hour, be the highest minimum wage ever in real-terms, 50 pence above the National Minimum Wage’s previous real-terms peak in October 2007.

The Resolution Foundation expects that 4.5 million workers will see their wages rise as a result of the NLW in April, rising to 6 million by 2020. Three in 10 female workers are expected to see a boost to their wages, over 60 per cent of all beneficiaries.

Of all the workers set to benefit this year, 1.9 million will be lifted up to at least the NLW with an average wage increase of £570 per worker in 2016 as a result of the policy. A further 2.6 million employees should benefit from the ripple effect of the NLW, with an average wage increase of £160 per worker, as employers choose to keep gaps between their lowest-paid staff and those on the next rung up.

Torsten Bell, Director of the Resolution Foundation, said:
“The National Living Wage is a bold policy. It is the right thing to do given the scale of low pay in UK, which is one of the great challenges of our time.”

Conor D’Arcy, Policy Analyst at the Resolution Foundation, said:
“The National Living Wage will give a welcome wage boost to 4.5 million workers when it comes in this week. It will continue to raise the pay packets of the lowest earners at an above-average rate throughout the parliament. The ultimate rate of £9 by 2020 is an extremely ambitious one, but one that will make significant inroads into tackling Britain’s low pay problem.”

Notes to Editors

The government’s intention for the National Living Wage is that it rises over time to equal 60 per cent of median hourly earnings for those aged 25 and over in 2020.

The calculation of the number of people indirectly affected by the NLW is based on assumptions about how many employers increase pay higher up the wage spectrum to retain current pay differentials.

A Resolution Foundation fact sheet on the NLW is available from the press office.