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How prepared is the public sector for the NLW?

Conor D’Arcy, policy analyst at the Resolution Foundation, looks at the potential impact of the National Living Wage (NLW) and apprenticeship levy on public sector employers and the importance of putting a plan in place.

“A robot is after your job.” Sound familiar? The rise of the robots and the end of work seem to have been rarely off our screens of late. Some speculate that rising labour costs – arising in part from the new the NLW and the apprenticeship levy – will turbo-charge the pursuit of worker-replacing technological advancement. Should we be worrying about technology-driven unemployment? 

But that robot headline isn’t from this year or last. It featured in the New York Times in 1980. Similar concerns were aired when the National Minimum Wage was introduced in 1999. At the time, up to two million jobs were discussed as being under threat. 

Are we ready for NLW? 

The weight of evidence finds employment hasn’t been negatively affected. So technology and higher labour costs are unlikely to be the end of the world, but they will be giving many employers pause for thought on how best to run their organisation and deal with these changes. Besides, the NLW takes us into unchartered territory – it will have wider coverage across the workforce than any major minimum wage in the world. How prepared are public sector employers? 

First, it’s worth putting the size of the challenge presented into context. The private sector will face a bigger shift than the generally higher-paying public sector. However, this needs to be weighed against the 1% annual pay cap placed upon the sector. With 800,000 public sector workers expected to see some pay rise as a result of the NLW by 2020, the burden of meeting the costs may fall on other public sector workers in the shape of no or smaller pay increases. 

Given the NLW has only been in place since April, we’ll have to wait a while before official datasets let us dig into exactly what’s happening. But a survey of 500 employers conducted in early June for the Resolution Foundation sheds some light on how employers across the economy have reacted to these pressures, and their plans for the future. A little over one-in-three said their wage bill had been affected by the NLW this year, with just 6 % describing the size of the effect as large. 

Among those who have been affected, just 14% have chosen to reduce the amount of labour they’ve used either through slowing recruitment, cutting back on the number of hours offered to staff or making redundancies. The early signs are that the NLW isn’t endangering employment overall. Most employers have instead taken a ‘suck it and see’ approach by taking lower profits or raising prices. But these aren’t available to much of the public sector. 

Productivity boosters 

However, the productivity-enhancing responses that many employers say they’re carrying out do offer valuable lessons. Some 16% of employers said they had asked their workers to do more, whether that’s increased effort or looking at job design and the complexity of the tasks they carry out. This response may sound wearily familiar to many public servants who’ve been asked to do more for less for many years now. 

More encouragingly, 12% of employers said they were making greater investment in technology and a further 15% said they had chosen to invest more in training their staff. When we asked employers how they planned to react over the next five years, these productivity boosters became more popular. 

There’s unlikely to be a uniform approach, with the task of thinking through the options available and how to make the most of staff and technology varying across the diverse roles within the public sector. The crucial question is, how big a difference will these efforts make? 

Across the economy, the UK’s productivity growth has disappointed for years. But while there’s no magic lever to be pulled, improving the skills and career pathways of those with low-to-middle qualifications and better quality management could be important contributors. The use of technology in training and the re-evaluation of the tasks people do could certainly help too. 

A higher minimum wage and the march of technology aren’t likely to rewrite the rulebook for the public sector over the rest of this Parliament. But putting a plan in place to make the most of these changes will be essential.

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