Age Discrimination and the National Living Wage

10 June 2016

A debate has taken place in the House of Commons (8 June) on age discrimination and the National Living Wage (NLW).

The findings of the debate have yet to be published but we would assume they will help inform the Low Pay Commission’s report to government due in October.

A debate pack was produced ahead of the meeting which contains all relevant minimum wage information to inform the debate, including detail from the Office for Budget Responsibility (OBR) estimating the direct effect the NLW will have on earnings.

According to the OBR around ¾ million people aged 25 and over would move from receiving the NMW to the higher NLW. Just under 2 million people would move from having hourly earnings between the £8.25 assumed NMW rate and the £9.35 assumed NLW rate to at least the NLW rate. Hourly earnings of around £9.35 would place an individual at the 16th percentile of the earnings distributions. Assuming the spillover effects extend to the 25th percentile implies that an additional 3.5 million people will also be affected, taking the total number of people affected to around 6 million.

Assuming no change in employment hours worked, the NLW would result in a 0.3 per cent increase in whole economy compensation of employees, which employers could respond to in a variety of ways, including:

  • reducing hours;
  • reducing jobs;
  • replacing over 25s with younger workers; or
  • increasing prices.

It is estimated that as a result of the NLW, by 2020 there would be 60,000 fewer jobs that there would otherwise have been.

The introduction of the NLW alongside a new 21-24 year old age band led to renewed interest in the rationale behind NMW age-banding, fears that workers over 25 would be discriminated against in favour of younger, cheaper workers.

The rationale for minimum wage age banding has typically been that younger workers occupy a more vulnerable position in the labour market, with a greater need to acquire experience and that if younger workers were eligible for the full minimum wage they might be priced out of the labour market.

The LPC has always supported lower minimum wages for younger workers.

 CIPP comment

A consultation has been published which is seeking evidence to inform the Low Pay Commission's (LPC) report on the level of the UK’s minimum wage rates to apply from April 2017- 2018, on which they have been asked to make recommendations to the government by October 2016.

On the National Living Wage, the LPC are particularly interested in evidence on the effect of the introductory rate of £7.20 on workers, employers, the labour market and the economy - including how firms and workers are adjusting and impacts on pay, terms and conditions etc. and also views of the projected ‘on target’ rate for April 2017 - the current estimate is to be around £7.60 in April 2017, rising to just over £9 by 2020.

The CIPP Policy Team will be running a survey shortly and will also be hosting a think tank with the Low Pay Commission later this month to help inform the report.


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