Minimum Wage increase – Is it doom and gloom for businesses?
In April, the National Minimum Wage is set to increase by 6.2%, an amount which is 4 times the amount of inflation. This will increase the average full-time worker’s wage by £930 a year.
Small businesses often operate on tight margins and being legally bound into paying staff a higher wage can be a daunting prospect but is it all doom and gloom for small businesses?
According to FSB, four out of ten small businesses say operating costs are rising due to increasing employment costs. The Low Pay Commission has warned the Government that the increase will be ‘very stretching’ for employers unless action is taken to raise productivity, align tax and benefits policies and enforce compliance.
Workers on minimum wage earn 13% more than they did in 2008, however, the average worker’s wage is getting them less for their money than 11 years previously (when adjusted for inflation).
The Living Wage Foundation calculates a separate rate that they independently deem to be fair. This rate is currently set at £9.30 an hour for worker’s outside of London or £10.75 for those in London and is currently paid by 6,000 UK employers voluntarily. LFW believes that with so many workers across the country missing out on a fair wage, the Government has more work to do.
“There are still over 5 million workers in the UK earning less than the real living wage.
“There is a gap between the Government minimum and the real living wage, [which is] independently calculated based on what it costs to live.” – Katherine Chapman, director of the LFW
Councillor Sajid Javid reported back in September 2019 that the wages of the lowest-paid full-time workers had increased by £3,600 since the national living wage was introduced in 2010. He also stated that the Conservative Government want to “do more to level up and tackle the cost of living” and that the NMW will increase even further to £10.50 by 2024.
How do businesses cope with an NMW increase?
Benefits:
- Increases customer spending as they have more money.
- Increase employee satisfaction as they feel they are getting paid fairly.
- Improve the quality of work due to increased motivation.
- Reduce staff turnover and absenteeism.
Disadvantages
- Increases inflation.
- Inward investment deterred.
- Labour market could become inflexible.
- Competitiveness of UK goods abroad.
Some business owners will decide to pass on the increase to customers in the form of raising prices. They could also decide to cut expenses by freezing recruitment campaigns or even make redundancies. The second option is quite extreme and won’t be necessary for most businesses.
“A higher minimum wage could reduce vacancies and turnover instead of destroying jobs.” – Arindrajit Dube, professor of economics at University of Massachusetts
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