The news that workers in the United Kingdom are set to benefit from a 7% boost to the real living wage in a move that may help to stem the nation’s dwindling productivity rates.
The real living wage will see the pay packets of almost half a million workers rise in value to £13.45 per hour nationwide and £14.80 an hour in London. The increases represent an 85p and 95p increase, respectively.
While the salary boost doesn’t affect the national minimum wage, which is the statutory minimum for workers, the real living wage is paid voluntarily by 16,000 employers throughout the United Kingdom and is supported by more than half of the companies listed on the FTSE 100.
Formed as a means of tackling poverty pay, the real living wage primarily seeks to support workers nationwide, but the impact of its recent increase may help to address a long-term problem with productivity throughout the UK.
Addressing the Productivity Gap
Data suggests that the United Kingdom has long struggled to keep up with its international peers when it comes to productivity.
In 2004, the real GDP measure to reflect the purchasing power of income while factoring out inflation shows that the US gross domestic product per capita stood at approximately $58,000, compared to $47,000 in the UK.
This represents a productivity gap of around $11,000 at the time. By 2024, this gap has more than doubled to $23,000, with the UK only managing to boost its GDP per capita to $52,500 in 20 years.
Economists have termed Britain’s problems as the ‘productivity puzzle,’ which represents a relative fall in productivity growth following the 2008 financial crisis, when, if pre-2007 trends had continued, the nation would be 16% more productive today than figures suggest.
Addressing wage disparities may help to support greater levels of productivity, and the boost to the real living wage received by workers could make a significant difference at a time when more workers are unhappy with their pay packets.
Recent surveys show that as many as 50% of UK workers feel that they are not paid enough. This negative mindset at work may be contributing to productivity shortcomings, particularly at a time when inflation has brought a cost-of-living squeeze that’s challenging more households nationwide.
Data from the Global Payroll Association shows that a third of UK workers are willing to jump ship from their employer in 2025, citing discontentment with wages as a driving factor.
Tailwinds for Engagement
In addressing the wage concerns of around 500,000 workers, the real living wage boost comes at a time when more businesses are adopting AI tools as a means of growing the levels of engagement surrounding their workforce.
Artificial intelligence tools are helping to streamline employee workflows, paving the way for more teams to manage projects and tasks efficiently to quickly complete projects and lower instances of human error in a move that can boost employee contentment.
Crucially, AI is helping to pick up the slack of more repetitive and mundane tasks, allowing employees to focus on more engaging challenges that can grow their productivity.
For example, IBM’s watsonx Orchestrate is helping to automate procurement processes for teams. Solutions within the tool, such as Ask Procurement, contract management, and procure-to-pay order management, are empowering workers to use their skills and creativity on more challenging tasks.
Time-Saving Responsiveness
Another way that AI is helping to improve both employee engagement and workplace productivity is through the technology’s responsiveness, which has the power to process large volumes of structured and unstructured data at scale at a faster pace than humans can manage.
These processes reduce the time teams need to plan in response to changes, improving productivity, efficiency and hiring itself.
Automated analytical tools also help to identify trends faster, allowing decision makers to anticipate changes and act on them in a way that isn’t jarring for workers.
These intelligent processes mean that employees can feel appropriately paid for the more engaging tasks that they can allocate more time to using their skills on, improving output and engagement in a way that fosters productivity.
Supporting Productivity
The United Kingdom has long struggled to maintain its productivity levels, while international peers like the US have covered more ground. However, the recent real living wage hike and implementation of smart solutions to cover repetitive tasks could help to close the nation’s productivity gap.
Pay increases can pave the way for a more engaged workforce that benefits from an eased burden thanks to AI and automation tools. As a result, we could see more workers in the United Kingdom become more content and emboldened in their roles, leading to happier and more productive employees.
