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Lay Summary
The effects of minimum wage policy on the long-term care sector in England
Florin Vadean and Stephen Allan, October 2020


The introduction of the National Living Wage (NLW) in April 2016 was a major labour market intervention, with the aim of increasing wages of the lowest paid. Between April 2015 and April 2016 someone paid the minimum wage aged 25 and over received a boost in their pay of more than 10 per cent. The wage increase affected employers’ costs. Businesses in several labour intensive, low-pay sectors — including Adult Social Care (ASC) — expressed concerns about potential negative effects on employment and financial sustainability. We assessed the effects of the increase in minimum wage on care homes and home care providers and their staff by looking at what happened to wages, employment, hours of work, and employment contracts. This research was carried out in 2017 and revised in 2020 and included public research advisor involvement in the development of the overall research.


Using data from the Adult Social Care Workforce Data Set (ASC-WDS), we found that despite the large positive effect on wages, the introduction of the NLW did not significantly reduce the number of care staff employed. We found, however, evidence that care homes reduced working hours, and particularly by those homes that were for-profit. The size of the reduction was relatively modest. Moreover, we found that there was a temporary increase in the number of staff employed on contracts without guaranteed working hours (i.e. zero hours contracts) by both care home and home care providers. This may have reflected a short-term uncertainty in the market about the capacity that providers had to meet. 


Probably the most important effect of the minimum wage policy on the social care sector was the reduction in wage differences between care workers. Those with higher wages, usually those with greater skills and experience, did not see their wages increase as much as those with the lowest wages, if at all. Also, as the minimum wage level increased, more and more care workers were paid at the new minimum level. While in April 2015 around 35 per cent of residential care workers aged 25 and over had an hourly wage at the minimum wage rate of £6.50, in October 2016 the share of care workers paid at the (new) minimum rate (£7.20) was about 50 per cent. In home care, wages were on average somewhat higher. Still, the share of care workers aged 25 and over paid at the minimum wage rate increased from 15 to 30 per cent between April 2015 and October 2016. This means that there was less progression in wages and that skills and experience were rewarded to a lower degree. This could have potential long-term implications for job-satisfaction and staff retention in ASC.


Whilst all sectors of the economy faced the introduction of the NLW, the ASC sector faced an additional constraint to adjusting to the cost increase. Many ASC services are commissioned by local authorities, which experienced substantial budget cuts during the 2010s due to austerity measures. Therefore, care providers lacked the flexibility of passing on cost increases on to the fees they charged. We have shown that the minimum wage legislation had a noticeable impact on the sector, with a small reduction in working hours, increased use of zero hours contracts and reduced pay rewards for skills and experience. This could ultimately have an impact on the quality of care received by residents given the reduction in hours worked and the potential loss of experienced staff to sectors/employers with more rewarding pay structures (e.g. NHS). 


Florin Vadean,

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