The Social Market Foundation (SMF) said 1.73 million people will not benefit from the higher NLW. By 2020, the figure is expected to be 1.88 million.
The current national minimum wage is £6.50 an hour but the new living wage, coming into effect from April for people over 25, is £7.20 an hour.
The SMF report – funded by independent charity Trust for London – said when the new higher NLW comes in, there will be an added incentive for firms to contract out services to self-employed people, as self-employed workers are not covered by the NLW.
Self-employment is a growing part of the employment landscape. It now accounts for over 1 in 7 of workers in the UK, a proportion that has grown by a quarter since 2000.
London has the highest rate of self-employment of all UK regions, with the self-employed accounting for 18% of all workers. Growth in self-employment in London was responsible for much of the jobs recovery after the last recession, the SMF said.
Demographics of self-employment
Growth in self-employment has been particularly stark among older people, according to the report. This may potentially reflect changes to work and retirement patterns, with older people choosing to stay in work for longer.
Report author, SMF chief economist Nida Broughton, said: “The government has focussed its efforts on tackling low pay among employees. But in doing so, it is further sharpening the divide between employee and self-employed. Policies such as the National Living Wage make it artificially more attractive for firms to engage contractors rather than employees, and ignore a large section of low paid workers. Policymakers need to adapt to a world that is moving away from the traditional employer-employee model of working.”