The Chancellor’s surprise announcement in the Summer Budget to introduce a “national living wage” of £7.20 per hour for workers aged over 25 from next April is good news for both workers and employers. However, there will be many employers out there running warehouses and logistics operations who may not initially see it this way and who will be more than a little nervous about the impact of this move on the competitive position of their business.

The dynamics of the labour market are set to change, but there will be enormous opportunities as a result – opportunities that should benefit all.

The labour market presently operates on a three-tier minimum wage system. Anyone under 18 years is entitled to receive £3.79, between 18 – 20 years £5.13, and over 21 years £6.50 (rising to £6.80 this October). From next April a further tier will be introduced for the over 25s at £7.20, rising to £9 by 2020.

Clearly, this differential in minimum wage rates between those over 25 and those under will strengthen demand for taking on younger workers. However, these workers are likely to need more training. Therefore companies will need to invest in training and on improving the individual worker’s efficiency if a younger labour force is to prepared for a more productive working life over the age of 25.

The key issue for the future will be productivity. The productivity of individuals will need to rise if the new “national living wage” is to be paid for by a competitive UK plc. This will be particularly critical to the highly labour intensive warehousing sector where demand for fast fulfilment is driving the retail market.

If retailers, manufacturers and logistics companies are to meet these future commitments then it will be imperative that they monitor productivity a great deal closer than they do at present. For those businesses that use agencies to provide labour resources, they will need to be sure that their agencies have the capability to work closely with them on monitoring productivity at the individual worker level. If a worker is not as productive as they are required to be, then the agency should work with that individual to raise their performance – perhaps by means such as more training or moving them to a more suited task. Important too will be the selection process, so that agreed required standards are set and maintained.

For the under 25s the initial perception of the budget may be one of disappointment, seeing a higher rate of pay just out of their reach. However, for this section of the workforce the future is now much brighter. Companies will, in effect, be incentivised to skew their recruitment policies to taking on younger individuals, and significantly, a greater emphasis will inevitably be placed on training and investment in young people for the future.

For the over 25s there are clear benefits too. The new “national living wage” offers recognition of the benefits an older worker brings, such as maturity, stability and experience – and these are important, highly desirable attributes appreciated by most employers.

However, the clear message that should be taken from the Chancellor’s commitment to a “national living wage” is that the productivity of the individual worker must rise and that means companies, along with their recruitment agencies, will need to put in place processes to monitor and improve the productivity of the individual. Significantly, this will require better training and investment in the youth of today, for a more productive future.

The chancellor has upped the stakes – the challenge is now upping productivity.

John O’Reilly is Operations Director at Flex Recruitment Plus