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Gill Dix: The National Living Wage - wage floor or productivity ceiling?

Wednesday 02 March 2016

A new report from the Resolution Foundation and the CIPD summarises some of the dilemmas facing employers as they confront the Government's new National Living Wage (NLW).

Gill Dix

Gill Dix

Gill Dix is Head of Strategy at Acas.

As Brendan mentioned in his recent blog, boosting productivity might be the best way to absorb higher wages.

The research report, Weighing up the wage floor: Employer responses to the National Living Wage [PDF, 281kb], captures the stats on this policy change aimed at bringing a wage increase to an estimated 4.5 million workers. But the report also brings into focus some of the real challenges for employers.

Most agree that, although something has to give, 'cuts in employment levels' are 'either undesirable or impossible'. So what options are employers beginning to identify?

Many are looking to narrow the gap in pay differentials. This is a solution that has been raised by employers with Acas, but there is growing recognition that this may be a complex (and expensive) option. Absorbing the loss is a further solution - but with rises in the wage floor forecast to 2020, employers will need to focus not just on the 'now' but on how rises can be accommodated in the longer term. A care sector respondent has raised the very real challenge of contractual and funding constraints standing in the way of a solution - this seems to amount to a 'wait and see' approach.

In spite of the challenges, it's heartening that some organisations are looking to boost their own productivity as a preferred solution. But the burning question is, how can increased productivity be achieved?

Acas believes that we have some of the answers. Last year we launched a new report, pdf icon Building Productivity in the UK [644kb], which put the workplace on the table as a practical solution to low UK labour productivity. This is an important change of focus - much of the debate around productivity tends to be around macro-economic solutions - and one which may begin to take on renewed emphasis as employers start to grapple with the NLW.

Addressing management practices to improve efficiency is at the heart of the Acas report, but so is well designed work matched with good use of skills, fair treatment and employees having a voice at work. We condensed our thinking into seven levers of productivity. And turning our own theory into practice, we recently launched The Acas Productivity Tool to help employers diagnose their own position in regards to the levers.

The take up has been positive with over 2,000 employers already completing the tool in its few weeks. This would seem to support the Resolution Foundation / CIPD research findings suggesting an appetite among some employers to address their own productivity challenge. If employers are to be more widely encouraged to take this approach, they may need guidance and support on how to do so. The Acas self-help productivity tool makes a start in this direction.

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