Living wage has positive impact on care industry, research shows

The worst fears about the impact of the national living wage on social care businesses have been confounded by research suggesting it has had a remarkably positive effect on pay rates in the traditionally low-wage sector.

When the statutory minimum of £7.20 an hour for all workers aged 25 or over was announced – an increase of 50p on the previous floor – employers in social care warned that they would struggle to pay it on profit margins that were already low.

Care England, the umbrella body for the bigger companies in the sector, which employs 1.6 million people in England alone, forecast on the eve of the new rate taking effect in April that the added cost would be the “the final straw” for some businesses teetering on the brink of viability.

But a study published on Tuesday by the Resolution Foundation thinktank indicates that the move has had a favourable effect not only on care workers directly benefiting but also – and unexpectedly – on younger workers and on wage rates across the sector. The overall pay bill has risen by more than twice that needed to meet the new minimum alone.

Laura Gardiner, senior research and policy analyst at the foundation, said: “It is great news that the national living wage has had a large, positive impact on low pay in social care, giving hundreds of thousands of frontline care workers a pay rise, with no evidence of hours being cut to foot the bill.”

The study, based on pay data for 80,000 employees of more than 2,000 care providers, suggests that 57% of frontline workers (54% of all) have benefited directly from the £7.20 minimum with an average pay rise of 9.2%. This includes 83% of those aged under 25 who are now receiving £7.20 or more, even though it is not required by law.

Noting that the overall pay bill has risen 6.9%, the study concludes that introduction of the national living wage is “undoubtedly correlated with an immediate and profound increase in pay in the sector”.

The foundation admits that its analysis does not cover any job losses or non-compliance with the new minimum. It also expresses concern at workers’ potential to progress up the pay ladder, pointing out that 32% of the sample studied were now “bunched” at £7.20.

A previous survey of local councils that commission social care found that 82% of them raised fees paid to care providers from April – almost half by more than 3% – after ministers allowed councils to add a 2% social care precept to council tax bills.

Living wage has positive impact on care industry, research shows