A far-reaching study has provided what claims to be compelling evidence that the introduction of the National Minimum Wage significantly increased productivity in tens of thousands of UK companies over the decade since it became law.
A team of economists and labour market specialists developed an innovative analytical technique to estimate the impact of the National Minimum Wage on productivity across Britain’s low-paying sectors, as defined by the Low Pay Commission.
The researchers believe their findings provide robust contemporary evidence that raising salaries at the lower end of the wage spectrum leads to higher productivity by incentivising workers to work harder, smarter and more cohesively. Their study suggests similar ‘wage incentive effects’ could now be expected from the introduction of the National Living Wage in the UK in April 2016.
The study was conducted by academics from the University of Lincoln and Middlesex University in the UK, and Australian Catholic University. It is published in the British Journal of Management.
Lead author Professor Marian Rizov from the University of Lincoln said: “Our findings offer compelling evidence that increasing wages for the lowest paid workers improves productivity, and that this effect applies in companies of all sizes and across most low-paying sectors.
“Employees’ perception that they and their colleagues are being paid a wage commensurate with their skill and effort – the so-called ‘fair wage-effort hypothesis’ – has a powerful influence on productivity, alongside other wage incentive effects.
“This has important implications for businesses at a time when wage inequality is growing and suggests that the new National Living Wage could potentially be an important step towards tackling Britain’s productivity problem.”