The UK’s experience with the National Living Wage

In the first half of 2016, the UK economy experienced a major shock. And no, I am not talking about the Brexit referendum in June of that year, which started a long-lasting period of high uncertainty that significantly weakened the economy. I am talking about the introduction of the National Living Wage on top of the National Minimum Wage.

For the uninitiated reader abroad, the National Living Wage is a minimum wage that is paid to workers aged 21 and over, which is higher than the official minimum wage. In essence, younger workers can be paid a reduced minimum wage (called ‘National Minimum Wage’). In comparison, older workers must be paid a higher minimum wage, confusingly called the ‘National Living Wage’. And then there is the non-mandatory ‘Real Living Wage’, which is even higher and promoted by the Living Wage Foundation, but I will ignore this for now.

The introduction of the National Living Wage on 1 April 2016 created a significant wage shock, with real wages rising by 7.2%. It was introduced at £7.20 ($10.26 at the time) per hour and has since grown to £12.21 ($16.36) per hour.

Back in the day, businesses, particularly in low-pay industries like retail, hospitality, and healthcare, warned that the introduction of such a higher minimum wage would create higher unemployment and backfire because job growth would slow as businesses create fewer jobs. At the time, the Office for Budget Responsibility in the UK estimated that it would cost 60,000 jobs and increase the unemployment rate by 0.2 percentage points.

Real National Living Wage and National Minimum Wage (before 1 April 2016)

Source: Albagli et al. (2026)

Pinjas Albagli and his co-authors from the London School of Economics used the tenth anniversary of the introduction of the National Living Wage to analyse the impact the National Living Wage had on the job market.

The first chart I want to show is the change in full-time employment in low-pay industries. The dots show the measured change in employment in these industries, while the bars show the range of outcomes from the top quartile, most exposed, to the bottom quartile, least exposed, in these industries. The chart shows that the introduction of the National Living Wage, followed by the Brexit shock, did not lead to fewer full-time jobs. Instead, the UK experienced a small increase in full-time employment between 0.3 and 1.0 percentage points.

Change in full-time employment in low-pay industries

Source: Albagli et al. (2026)

Ok, so more people were in full-term employment, but maybe more people were also underemployed or unemployed because job creation stalled. The chart below shows that this didn’t happen either. If anything, the number of underemployed people declined, the opposite of what one would expect if the minimum wage increased suddenly and the entire economy was hit by a major economic shock two months later.

Change in underemployment in low-pay industries

Source: Albagli et al. (2026)

The effects of the introduction of the National Living Wage in the UK generally are small, but they all tend to have the opposite sign of what opponents of minimum wages claim. In my view, this study indicates once again that increasing minimum wages does not create job losses. It typically has a negligible effect.

What the study explains is that rather than firing people, businesses used other means to adapt to the changed coast structure and higher wages. Most importantly, they redefined the work contracts and responsibilities of their employees to make them more productive and increase their value to the firm above the level of wages they earned. And I don’t think that is a bad outcome either.