Title page
Contents
Introduction 8
Executive Summary 14
Recommendations 27
Chapter 1: The Impact of the National Minimum Wage 34
Introduction 34
2015 National Minimum Wage Upratings 34
Impact on Earnings and Pay 37
National Minimum Wage Relative to Prices and Earnings 37
Earnings Distributions 42
Size of Firm 48
Low‑paying Sectors 49
Research on Earnings and Pay 51
Views on Earnings and Pay 54
Summary on Earnings and Pay 56
Impact on Employment and Hours 57
Employment and Employee Jobs 58
Hours 65
Research on Employment, Hours and Unemployment 66
Views on Employment and Hours 69
Conclusion on Employment and Hours 71
Impact on Competitiveness 72
Prices 72
Profits 74
Births and Deaths of Firms 76
Productivity 78
Research on Competitiveness 79
Views on Competitiveness 83
Summary on Competitiveness 85
Conclusion 85
Chapter 2: The Impact of the National Living Wage 87
Introduction 87
Views on the National Living Wage 88
Impact of the Introductory Rate in April 2016 90
Trajectory and Impact as the National Living Wage Moves Towards 2020 95
Summary of Views on the National Living Wage 101
Impact of the National Living Wage on Pay, Coverage and Wage Bills 101
Basis and Level of the National Living Wage 102
Impact on Earnings and Pay 103
Bite 106
Summary of the Impact on the Bite 116
Coverage 116
Summary of the Impact on Coverage 128
Impact of the National Living Wage on Wage Bills 129
Summary of the Impact on Wage Bills 131
International Comparisons 132
Conclusion 137
Chapter 3: Recommending the Rate of the National Living Wage 139
Introduction 139
The National Living Wage 141
Our Broad Approach 142
Relative Earnings‑based Target 144
Annual Bite Path 145
Profile of Increases 146
Our Approach to Measurement 148
Timetable 150
Conclusion 151
Chapter 4: 21‑24 Year Olds and the Adult Rate of the National Minimum Wage 152
Introduction 152
Remit and Role 153
Overview of the 21‑24 Year Old Cohort in 2015 155
Labour Market and Earnings Trends for the 21‑24 Year Old Cohort 164
Earnings, Bite, and Use of the Rates 164
Real Earnings 167
Coverage of the National Minimum Wage for 21‑24 Year Olds 168
Labour Market Participation, Employment and Not in Education, Employment, or Training 171
The Labour Market, Substitution, and Absolute and Relative Pay 177
Research 184
Conclusion 185
Chapter 5: Young People and Apprentices 186
Introduction 186
Young People 186
Youth Rates 186
Overview of the 16‑17 and 18‑20 Year Old Populations 187
Earnings 190
Bite of the Youth Rates 194
Real Wages 195
Coverage of the Youth Rates 197
Non‑compliance and Proportions Paid Below the Rates 200
Trends in Employment 202
Impact of the National Living Wage on Young Workers, and the Youth Rates 206
Research on the Impact of the Minimum Wage on Young People 211
Apprentices 213
Apprenticeship Starts 214
Apprentice Earnings 218
Apprenticeship Research 227
Apprenticeship Policy 228
Conclusion 228
Chapter 6: The Economy Context 230
Introduction 230
Economic Growth Forecasts 231
GDP 231
Consumer Spending 235
Investment 238
Trade 239
Summary of Output Forecasts 240
Labour Market 241
Employment and Employee Jobs 241
Hours 246
Vacancies and Redundancies 247
Prospects for the Labour Market 248
Summary of the Labour Market 250
Productivity 251
Inflation, Pay and Earnings 253
Inflation 253
Pay Settlements 255
Earnings Growth 257
Prospects for Wage Growth 261
Summary of Economic Context and Forecasts 266
Implications for the National Living Wage 268
Implications for the National Minimum Wage 269
Young Workers 269
Conclusion 270
Chapter 7: The Rates 272
Introduction 272
Stakeholder Views 273
Adult Rate of the National Minimum Wage (21‑24 Year Olds) 273
Youth Rates 276
Apprentice Rate 276
Implications of Other Government Legislation for Employer Costs 277
National Living Wage, Corporation Tax and Employment Allowance 277
Apprenticeship Levy 278
Pensions 279
Employer National Insurance Contributions Cuts for Younger Workers 280
Business Rates and Changes to Statutory Sick Pay Arrangements 281
Recommended Rates 281
Adult Rate 282
The Youth Development Rate (YDR) and the 16‑17 Year Old Rate 283
Apprentice Rate 283
Accommodation Offset 284
Indicative Rates 284
Future Principles and Direction of Travel 285
Implications of the Recommended Rates 285
Position Relative to Average Earnings 286
Coverage 287
Impact on Personal Tax Allowance and Household Income 289
Exchequer Impact 289
Conclusion 290
Chapter 8: Compliance and Operation of the National Minimum Wage 291
Introduction 291
The Compliance Challenge: Its Nature and Extent 291
Nature of the Challenge and the National Living Wage 291
Measuring the Nature and Extent of Non‑compliance 293
The Compliance Challenge: Latest Response and Our Assessment 297
Overall Strategy 297
Greater Resources 297
Raising Enforcement Activity 298
Developing More Effective Approaches to Casework 299
Higher Penalties and Increased Naming of Non‑compliant Employers 300
Use of Criminal Prosecutions 302
Promoting Access to Redress 303
Promoting Greater Compliance: Awareness Raising and Developing Guidance 305
The Compliance Challenge: Priority Issues and Groups of Workers 309
Care Workers 309
Apprentices 312
Employment Status: Internships, Work Experience, Volunteering, and 'Self‑employment' 314
Migrant Domestic Workers 317
Seafarers 319
Agricultural Workers 320
Employer provided Accommodation and Treatment of Other Deductions 321
Conclusion 325
Appendix 1: Consultation 328
Appendix 2: Research Overview for the Spring 2016 Report 333
Appendix 3: Minimum Wage Systems in Other Countries 341
References 349
Table 1.1. National Minimum Wage Hourly Rates, UK, 1999‑2015 36
Table 1.2. Bite of the National Minimum Wage at Various Points on the Earnings Distribution for Those Aged 22 and Over, UK, 1999‑2015 41
Table 1.3. Jobs Held by Those Aged 22 and Over, Paid At and Below the Existing National Minimum Wage and the Forthcoming National Minimum Wage, UK, 1999‑2015 44
Table 1.4. Wage Growth for Those Aged 22 and Over, by Selected Percentiles, UK, 1975‑2015 46
Table 1.5. Proportion of Jobs Held by Those Aged 21 and Over, Paid At and Below the Adult Rate of the National Minimum Wage, by Firm Size, UK, 2014‑2015 49
Table 1.6. Bite of the National Minimum Wage for Workers Aged 22 and Over, by Low-paying Industry, UK, 1999-2015 50
Table 1.7. Proportion of Jobs Held by Those Aged 21 and Over, Paid At and Below the Adult Rate of the National Minimum Wage, by Sector, UK, 2014‑15 51
Table 1.8. Change in Employment, Jobs and Hours, UK, 1999‑2015 59
Table 1.9. Change in Employee Jobs, by Low-paying Industry, GB, 1998‑2015 62
Table 1.10. Employment Rates, by Group of Workers, UK, 1999‑2015 64
Table 1.11. CPI, RPI and SPPI Price Inflation for Selected Goods and Services, UK, 1999‑2015 73
Table 2.1. Changes to Forecast Median Earnings for Those Aged 25 and Over, UK, 2014‑2020 103
Table 2.2. Cash and Percentage Increase in the National Minimum Wage/National Living Wage, UK, 1999‑2016 104
Table 2.3. Bite of the National Minimum Wage/National Living Wage at the Median for Those Aged 25 and Over, UK, 2014‑2020 107
Table 2.4. Bite of the Adult Rate of the National Minimum Wage/National Living Wage for Workers Aged 25 and Over, by Sector, UK, 2015‑2020 114
Table 2.5. Coverage of the Adult Rate of the National Minimum Wage/National Living Wage, UK, 2015‑2020 117
Table 2.6. Coverage of the National Minimum Wage/National Living Wage, for Workers Aged 16 and Over, by Job Characteristic, UK, 2015‑2020 120
Table 2.7. Coverage of the National Minimum Wage/National Living Wage for Workers Aged 16 and Over, by Low‑paying Occupation, UK, 2015‑2020 122
Table 2.8. Coverage of the National Minimum Wage/National Living Wage for Workers Aged 16 and Over, by Low‑paying Industry, UK, 2015‑2020 123
Table 2.9. Extra Wage Costs of the National Minimum Wage/National Living Wage for Workers Aged 25 and Over, UK, 2015‑2020 130
Table 2.10. Comparison of Minimum Wage Bite, for the UK, France, New Zealand and Australia, by Age, 2013-2020 135
Table 3.1. Median Earnings and the National Living Wage Under Various Scenarios, UK, 2020 144
Table 3.2. Indicative Straight Line Bite Path for the National Living Wage, UK, 2016-2020 147
Table 4.1. Bite of the Adult Rate of the National Minimum Wage Under Four Hypothetical Scenarios, UK, 2015‑2020 181
Table 4.2. Coverage of the Adult Rate of the National Minimum Wage Under Four Hypothetical Scenarios, UK, 2015‑2020 182
Table 5.1. Estimated Bite and Coverage for Young Workers Paid at the National Minimum Wage/National Living Wage, UK, 2015-2020 207
Table 5.2. Estimated Bite and Coverage of the 16‑17 Year Old Rate Under Two Scenarios: (1) Following Average Earnings Growth; and (2) Following the Projected Path of the National Living Wage, UK, 2015-2020 208
Table 5.3. Estimated Bite and Coverage of the Youth Development Rate Under Two Scenarios: (1) Following Average Earnings Growth; and (2) Following the Projected Path of the National Living Wage, UK, 2015-2020 209
Table 5.4. Percentage Increase in Minimum Wage Rates, UK, 1999‑2016 214
Table 5.5. Level 2 and Level 3 Apprenticeship Starts, by Country, UK, 2003/04‑2014/15 216
Table 5.6. Apprenticeship Starts, England, 2014/15-2015/16 218
Table 5.7. Apprentice Earnings and Bite of the National Minimum Wage, by Age and Year of Apprenticeship, UK, 2014‑2015 223
Table 6.1. Employment, by Status, Age, Hours and Permanency, UK, 2008‑2015 243
Table 6.2. Employee Jobs, by Low‑paying Sector, GB, 2013‑2015 245
Table 6.3. Pay Settlements, by Sector, UK, 2015 257
Table 6.4. Measures of Wage Growth Compared, GB and UK, 2012‑2015 259
Table 6.5. Actual Out‑turn and Independent Forecasts, UK, 2015‑2017 267
Table 7.1. Estimated Bite of the Recommended National Minimum Wage, UK, 2015‑2017 287
Table 7.2. Estimated Number and Percentage of Jobs Covered by the Recommended National Minimum Wage Rates, UK, 2016‑2017 288
Table 8.1. Estimating Non‑compliance for Particular Groups. Differences between Data Sources 296
Figure 1.1. Increases in the Real and Relative Value of the National Minimum Wage, UK, 1999‑2015 38
Figure 1.2. Real and Relative Value of the National Minimum Wage, UK, 1999‑2015 39
Figure 1.3. Bite of the Adult Rate of the National Minimum Wage, UK, 1999‑2015 40
Figure 1.4. Hourly Earnings Distribution for Employees Aged 21 and Over, UK, 2015 42
Figure 1.5. Annualised Growth in Hourly Earnings for Employees Aged 22 and Over, by Percentile, UK, 1992‑2015 47
Figure 1.6. Bite of the National Minimum Wage at the Median for Those Aged 22 and Over, by Size of Firm, UK, 1999‑2015 48
Figure 1.7. Change in Employee Jobs, by Sector, GB, 1999‑2015 61
Figure 1.8. Change in Employees, by Firm Size, UK, 2006‑2015 63
Figure 1.9. Annual Change in Hours Worked, by Sector, UK, 2008‑2015 65
Figure 1.10. Selected Profit Measures, UK, 1998‑2015 75
Figure 1.11. Net Change in Stock of Firms, by Selected Low‑paying Industry, UK, 2004‑2014 78
Figure 1.12. Productivity per Hour, by Selected Low‑paying Industry, UK, 1997‑2015 79
Figure 2.1. Real and Relative Value of the National Minimum Wage/National Living Wage, UK, 1999‑2016 105
Figure 2.2. Increases in the Bite of the National Minimum Wage/National Living Wage for Workers Aged 25 and Over, UK, 1999‑2015 107
Figure 2.3. Bite of the Adult Rate of the National Minimum Wage/National Living Wage, UK, 1999‑2020 108
Figure 2.4. Bite of the Adult Rate of the National Minimum Wage/National Living Wage, by Age, UK, 2015‑2020 110
Figure 2.5. Bite of the Adult Rate of the National Minimum Wage/National Living Wage for Workers Aged 25 and Over, by Size of Firm, UK, 1999‑2020 111
Figure 2.6. Bite of the Adult Rate of the National Minimum Wage/National Living Wage for Workers Aged 25 and Over, by Country and Region, UK, 2015‑2020 112
Figure 2.7. Bite of the Adult Rate of the National Minimum Wage/National Living Wage for Workers Aged 25 and Over, by Group of Workers, UK, 2015‑2020 115
Figure 2.8. Coverage of the Adult Rate of the National Minimum Wage/National Living Wage for Workers Aged 25 and Over, UK, 1999‑2020 118
Figure 2.9. Coverage of the National Minimum Wage/National Living Wage for Workers Aged 16 and Over, by Job Characteristic, UK, 2015‑2020 119
Figure 2.10. Coverage of the National Minimum Wage/National Living Wage for Workers Aged 16 and Over, by Country and Region, UK, 2015‑2020 125
Figure 2.11. Coverage of the National Minimum Wage/National Living Wage, by Age, UK, 2015‑2020 126
Figure 2.12. Coverage of the National Minimum Wage/National Living Wage for Workers Aged 16 and Over, by Group of Workers, UK, 2015‑2020 128
Figure 2.13. Extra Wage Costs of the National Living Wage for Workers Aged 25 and Over, by Sector, UK, 2015‑2020 131
Figure 2.14. International Comparisons of Minimum Wage Bite at the Median, 2014‑2020 134
Figure 2.15. International Comparisons of Minimum Wages, by Value, 2014 137
Figure 4.1. Economic Activity, by Age, UK, 2015 155
Figure 4.2. Employment, Unemployment and Inactivity Rates of Those Not in Full-time Education, by Age, UK, 2015 156
Figure 4.3. Distribution of Low‑paying Jobs, by Age, UK, 2015 157
Figure 4.4. Distribution of Part‑time and Full‑time Low‑paying Jobs Held by 21‑24 Year Olds, by Low‑paying Occupation, UK, 2015 158
Figure 4.5. Hourly Earnings, by Age, UK, 2015 159
Figure 4.6. Proportion of Jobs Paid At and Below the National Minimum Wage, by Age, UK, 2015 160
Figure 4.7. Bite of the National Minimum Wage at Various Points on the Earnings Distribution, by Age, UK, 2015 161
Figure 4.8. Hourly Earnings at the Median, by Age, UK, 2015 162
Figure 4.9. Bite of the National Minimum Wage at the Median, by Age, UK, 2015 163
Figure 4.10. Hourly Earnings Growth at the Median, by Age, UK, 2011‑2015 164
Figure 4.11. Annualised Adjusted Earnings Growth at the Median and Growth of the National Minimum Wage, by Age, UK, 1999‑2015 165
Figure 4.12. Bite of the National Minimum Wage at the Median of the Hourly Earnings Distribution, by Age, UK, 1999‑2015 167
Figure 4.13. Nominal and Real Level of Median Earnings for 21‑24 Year Olds, by Price Index, UK, 1999‑2015 168
Figure 4.14. Percentage of Workers Paid Below Their Applicable Minimum Wage, UK, 1999‑2015 169
Figure 4.15. Percentage of Workers Paid At Their Applicable Minimum Wage, by Age, UK, 1999‑2015 170
Figure 4.16. Proportion of 21‑24 Year Olds Paid At the National Minimum Wage, by Age, UK, 2011‑2015 171
Figure 4.17. Employment Rates of Those Not in Full-time Education, by Age, UK, 1993‑2015 172
Figure 4.18. Employment Rates of 21‑25 Year Olds Not in Full-time Education, by Age, UK, 1993‑2015 174
Figure 4.19. Unemployment Rates of Those Not in Full-time Education, by Age, UK, 1993‑2015 175
Figure 4.20. Unemployment Rates of 21‑25 Year Olds Not in Full-time Education, by Age, UK, 1993‑2015 176
Figure 4.21. 21‑24 Year Olds Not in Education, Employment or Training (NEET), by Activity, UK, 2002‑2015 177
Figure 4.22. Jobs in Retail, Hospitality, Other Low‑paying and Non Low‑paying Occupations, by Age, UK, 2015 178
Figure 4.23. Percentage of Jobs Paid At, Between and Above Minimum Wage Rates, by Age, UK, 2015 179
Figure 4.24. Nominal Value of the Youth and Adult Rates Under Three Hypothetical Scenarios, UK, 1999‑2020 183
Figure 5.1. Economic Activity, by Age, UK, 2015 188
Figure 5.2. Percentage of Workers in Retail, Hospitality, Other Low‑paying and Non Low‑paying Occupations, by Age, UK, 2015 189
Figure 5.3. Low‑paying Jobs in Retail and Hospitality, by Age, UK, 2015 190
Figure 5.4. Median Hourly Earnings and the Minimum Wage for 16‑17 Year Olds, UK, 1999‑2015 191
Figure 5.5. Annual Growth in Median Hourly Earnings and the Minimum Wage for 18‑20 Year Olds, UK, 1999‑2015 192
Figure 5.6. Growth in the Minimum Wage and Median Earnings, by Age, UK, 1999‑2015 193
Figure 5.7. Bite of the Minimum Wage at the Median, by Age, UK, 1999‑2015 195
Figure 5.8. Nominal and Real Level of Median Earnings for 16‑17 Year Olds, by Price Index, UK, 1999‑2015 196
Figure 5.9. Nominal and Real Level of Median Earnings for 18‑20 Year Olds, by Price Index, UK, 1999‑2015 197
Figure 5.10. Percentage Paid at Their Age‑related Minimum Wage Rate, by Age, UK, 1999‑2015 198
Figure 5.11. Percentage of 16‑17 Year Olds Paid at Various Focal Points, UK, 2007‑2015 199
Figure 5.12. Percentage of 18‑20 Year Olds Paid at Various Focal Points, UK, 2007‑2015 200
Figure 5.13. Percentage Paid Below Their Age‑related Minimum Wage Rate, by Age, UK, 1999‑2015 201
Figure 5.14. Economic Activity of 16‑17 Year Olds, UK, 1994‑2015 202
Figure 5.15. Economic Activity of 18‑20 Year Olds, UK, 1995-2015 203
Figure 5.16. Employment and Unemployment Rates for Young People Not in Full‑time Education, by Age, UK, 1993-2015 204
Figure 5.17. Young People Not in Education, Employment or Training (NEET), by Age and Activity, UK, 2002-2015 205
Figure 5.18. Nominal Hourly Value of the Youth and Adult Rates Under Three Hypothetical Scenarios, UK, 1999‑2020 210
Figure 5.19. Youth Rates as a Proportion of the Adult Rate of the National Minimum Wage, UK, 1999‑2020 211
Figure 5.20. Level 2 and Level 3 Apprenticeship Starts, UK, 2003/04‑2014/15 215
Figure 5.21. Apprenticeship Starts, by Age, England, 2005/06‑2014/15 217
Figure 5.22. Earnings Growth Among the Cohort Eligible for the Apprentice Rate, by Age, UK, 2014‑2015 220
Figure 5.23. Earnings Growth Among 21‑24 Year Olds in Year One of an Apprenticeship, UK, 2014‑2015 221
Figure 5.24. Earnings Growth and Median Earnings of Apprentices in Year Two or Longer of an Apprenticeship, by Age, UK, 2014-2015 222
Figure 5.25. Coverage of the Apprentice Rate, UK, 2014‑2015 224
Figure 5.26. Coverage of the Age-related National Minimum Wage Rates for Apprentices in Year Two or Longer of an Apprenticeship, UK, 2014‑2015 225
Figure 5.27. Non‑compliance with the Apprentice Rate, by Age, UK, 2014‑2015 226
Figure 5.28. Non‑compliance with the Age‑related National Minimum Wage Rates, by Age, UK, 2014‑2015 227
Figure 6.1. GDP Quarterly Growth, UK, 2008‑2015 232
Figure 6.2. GDP Quarterly Growth, UK, 1979‑2015 233
Figure 6.3. Recoveries from Recessions Compared, UK, 1979‑2015 234
Figure 6.4. Consumer Spending, Real Household Disposable Income and the Savings Ratio, UK, 1998‑2015 236
Figure 6.5. Consumer Confidence, UK, 1994‑2015 237
Figure 6.6. Business Confidence, UK, 1994‑2015 240
Figure 6.7. Employment, UK, 1999‑2015 242
Figure 6.8. Annual Change in Employee Jobs, by Sector, GB, 2008‑2015 244
Figure 6.9. Change in Employment, by Firm Size, UK, 2010‑2015 246
Figure 6.10. Hours Worked, by Sector, UK, 2008‑2015 247
Figure 6.11. Vacancies and Redundancies, UK, 2002‑2015 248
Figure 6.12. Productivity on Various Measures, UK, 2008‑2015 251
Figure 6.13. Productivity for Whole Economy, Retail and Hospitality, UK, 2008‑2015 252
Figure 6.14. Inflation, UK, 2005‑2015 253
Figure 6.15. Contributions to CPI Inflation, UK, 2014‑2015 254
Figure 6.16. CPI, RPI and Forecasts of Price Inflation, UK, 2012‑2018 255
Figure 6.17. Pay Settlements, UK, 2011‑2015 256
Figure 6.18. Average Weekly Earnings Growth, GB, 2001‑2015 258
Figure 6.19. Alternative Measures of Earnings Growth, GB and UK, 2005‑2015 259
Figure 6.20. Growth in Real and Nominal Average Weekly Earnings Total Pay, GB, 2001‑2015 260
Figure 6.21. Real and Nominal Average Weekly Earnings Total Pay, GB, 2000‑2015 261
Figure 6.22. Average Earnings Growth and Forecasts, GB and UK, 2012‑2020 262
Figure 6.23. Average Earnings Growth, Forecasts and Outcomes, GB and UK, 2003‑2015 266
Figure 8.1. Proportion of Workers Aged 16 and Over Paid Below Their Age-related National Minimum Wage Rates, 1999‑2015 294
Table A2.1. Low Pay Commission Research Projects for the Spring 2016 Report 338
Table A3.1. Comparison of Adult Minimum Wages, by Country, End 2015 343
Table A3.2. Youth Minimum Wage Rates as a Percentage of Adult Minimum Wage Rates, by Country, 2015 346
Figure A3.1. Changes in Adult Minimum Wages, by Country, 1999‑2015 344
Figure A3.2. Annualised Growth in Adult Minimum Wages, by Country, 1999‑2015 345
Figure A3.3. International Comparisons of Minimum Wage Coverage, 2010 348