A new study by the Smith Institute has found that a rise in the minimum wage would help boost local economies by over £1 billion.

The thinktank’s study said a small rise to the minimum wage would encourage employers to deploy workers more productively, helping to escape the spiral of low productivity affecting businesses today.

“Big employers often like to talk about the positive role they play in their local community. One way that they can go beyond the warm words is to pay their staff the living wage and demand their suppliers do the same,” said Paul Hunter, the deputy director of the Smith Institute.

“This is not just about good corporate citizenship. Evidence shows workers paid fairly are more productive. And, as our research shows, the living wage can also provide a boost to the local economy on which established employers are dependent.”

The study suggests raising the minimum wage in businesses from £7.38 an hour, or £7.83 for those aged 25 years or older, to the voluntary living wage.

The Living wage is run by the Living Wage Foundation and recommends employees being paid a minimum of £10.20 an hour in London and £8.75 elsewhere in the UK.

Labour mayor of the Sheffield city region, Dan Jarvis, said: “It is concerning that Sheffield city region has the highest percentage of employees earning below the voluntary living wage of all the regions considered in the report. Ensuring that people are paid a proper wage which meets the cost of living is vital for residents and good for the economy.”

The leftwing thinktank also used the report to highlight the importance of public and private-sector employers such as universities, hospitals and football clubs and the role they can have in promoting on the living wage.