Groundbreaking research spearheaded by Bayes Business School offers novel insights into the unintended consequences of the UK’s National Living Wage (NLW) introduction in April 2016. While the policy aimed to uplift the earnings of low-wage workers, findings indicate a significant decline in labor mobility among this demographic, presenting complex ramifications for both employees and labor markets at large. The National Living Wage, designed to replace the National Minimum Wage for workers aged 25 and above, elevated the hourly pay threshold by 50 pence to £7.20, marking the most substantial minimum wage increment since its inception in 1999. This historic policy shift prompted rigorous investigation into its effects on job switching behaviors, specifically whether reinforcing the wage floor inadvertently anchored low-paid workers to their current employers by reducing the incentive to seek alternative employment opportunities.
The study, helmed by Professor John Forth of Bayes, is the first empirical evaluation within the UK to examine the intersection between a rising statutory wage floor and labor mobility across firms. Utilizing robust statistical methodologies and data spanning several years, the research dissects the dynamics at play in low-wage employee job transitions post-NLW implementation. Results demonstrate a clear reduction in between-firm labor mobility by approximately two to three percentage points for workers at or near the wage threshold compared to those earning slightly above it. This evidence signals that the wage increase, while easing financial strain, may suppress workforce dynamism by making job transitions riskier or less appealing.
Nuances emerge upon closer scrutiny of wage bands adjacent to the NLW threshold. The dampened mobility effect extends beyond workers precisely at the mandated rate, influencing even those earning up to 25 pence above the new wage floor. This spillover effect suggests that a compressed wage distribution at the lower spectrum constrains workers’ incentives across a broader salary range, further emphasizing the wage floor’s pervasive impact on employment fluidity. Curiously, mobility within the same firm did not exhibit significant changes, implying that the primary hindrance lies in moving between distinct employers rather than internal shifts within organizations. This distinction hints at the role of firm-level policies and career progression structures in shaping labor market responses to wage policy shifts.
The analytical framework of the research hinges on meticulous examination of the Annual Survey of Hours and Earnings (ASHE) dataset, incorporating detailed gross hourly earnings that encompass base pay, bonuses, and incentives, while excluding overtime. The sample comprehensively covers workers aged 25 and over employed consecutively across years spanning 2011/12 through 2018/19, involving an extensive dataset of over 116,000 observations, drawn from approximately 800 firms annually. The use of two-year data blocks allows for longitudinal analysis of job mobility trends, integrating wage floor changes with employment transition rates in a statistically robust manner.
Economically, the findings underscore the tension between wage policy objectives and market efficiency. The sharp wage hikes afforded to previously underpaid workers undeniably improve immediate well-being and financial security, which correlates with increased job satisfaction and reduced turnover. However, the compression of wages among the lowest pay bands effectively dampens the calculus of job searching by muting the financial incentives that typically drive workers to seek better opportunities. This inertia in the low-wage labor market might constrain employers’ ability to fill vacancies flexibly and adapt to evolving business needs, potentially leading to inefficiencies and stunted firm growth.
The implications resonate beyond individual workers and firms, touching upon macroeconomic labor mobility and productivity paradigms. Reduced between-firm job switching limits knowledge transfer, innovation diffusion, and human capital allocation, which collectively underpin economic vitality. From a policy standpoint, the research cautions that elevating minimum wages, while socially beneficial in the short term, may inadvertently exert drag on labor market dynamism and economic development if not paired with complementary measures that enhance career progression and worker reskilling within firms.
Professor Forth articulates a nuanced perspective on these findings, highlighting the dual-edged nature of wage floors. Higher statutory wages unequivocally uplift low-income workers’ living standards, yet by diminishing the perceived risks and rewards of searching for alternative employment, they may constrict labor market fluidity. He advocates for ongoing scrutiny by the Low Pay Commission as the NLW framework evolves, especially as considerations expand regarding extending coverage to younger cohorts aged 18 to 21. Such vigilance will be indispensable to balance wage growth objectives with the imperative of sustaining a vibrant and responsive labor market ecosystem.
The study’s team, comprising experts from Bayes Business School, University of Stirling, University College London, and University of the West of England, embodies an interdisciplinary approach combining human resources management, economics, and labor studies. Their collaborative effort leverages innovative statistical techniques and administrative data research, backed financially by ADR UK and the Economic and Social Research Council, underscoring the significance of evidence-based policymaking in navigating the complexities of labor economics.
Importantly, the research sheds light on how wage policy intersects with labor market behaviors beyond mere employment rates. It invites a reconsideration of minimum wage policies as part of an integrated approach that considers mobility, firm heterogeneity, and worker opportunity structures. Future investigations could extend these insights to examine longer-term impacts, including career trajectories, skill accumulation, and firm-level productivity outcomes, fostering a more holistic understanding of minimum wage effects on economic dynamism.
This seminal analysis published in the British Journal of Industrial Relations opens new avenues for policymakers and academics alike, prompting a more calibrated discourse on optimizing statutory wage floors without compromising labor market adaptability. As governments worldwide grapple with equitable wage setting amidst evolving economic landscapes, such empirical evidence is invaluable in illuminating the trade-offs and guiding balanced policy interventions.
Subject of Research:
Article Title: The impact of a rising wage floor on labour mobility across firms
News Publication Date: 21-Jul-2025
Web References: https://onlinelibrary.wiley.com/doi/10.1111/bjir.70008
References: Professor John Forth, Dr Carl Singleton, Professor Alex Bryson, Professor Felix Ritchie, Lucy Stokes, and Dr Damien Whittard, British Journal of Industrial Relations
Keywords: Human resources, Corporations, Business, Economic development, Economic growth, Mathematical economics, Public finance, Money, Fiscal policy, Society, Economic history, Econometrics
