Minimum Wage Debate

As much as any other issue we deal with, the National Minimum Wage prompts passionate and radically opposing viewpoints. Some, including some senior politicians, will privately say that the minimum wage is a distortion of the labour market and damages jobs, growth and competitiveness. Others believe that wage inequality must be addressed far more aggressively through big increases in the minimum wage. I don’t think you can ever reconcile these perspectives, and this week’s announcement of the Low Pay Commission’s recommendation of a 3% minimum wage increase, to which we await the Government’s response, brings this debate to the fore once again.

My starting point on this is very pragmatic, and rooted in what we know about how convenience stores operate. It’s a complex picture, because the argument that minimum wage increases shut thousands of stores (which I was probably guilty of suggesting a decade and more ago) are too simplistic. Here’s what we do know: retailers cut back on hours they employ staff for, and delay investment in their stores, when wage costs go up. This is inevitable, because wage costs are the biggest single cost for a convenience retailer, and one of the few they can actually control – business rates and rent aren’t really negotiable.

The issue is further complicated because about one third of retailers don’t employ staff other than their families. These retailers work incredibly long hours to make ends meet, but they won’t be directly affected by the minimum wage increasing. They are however relevant to the debate, because they are among the 55% of local shop owners who don’t earn the National Minimum Wage themselves. If it becomes more profitable to be employed than to be an entrepreneur, then that has profound effects on the economy. Don’t get me wrong – an entrepreneur cannot be guaranteed an income, and by their nature some will fail – but if such a large number of business owners would be better off working for someone else, that’s a significant problem.

What’s more, a 3% increase in the National Minimum Wage is expecting more of businesses than the Government is prepared to do itself. Public sector workers will receive a 1% pay increase this year because by fairly common consensus the Government can’t afford to pay them more. Yet businesses are expected to find triple that wage rise. It is a huge risk to put a cost increase above inflation and above average wage increases into businesses’ P&Ls and to expect no adverse consequences.

The biggest danger of all here is that the National Minimum Wage continues to be used as a political football. Even in the short term, we fear a bun fight in Government, with George Osborne and Vince Cable calculating the political value of over-riding the Commission’s recommendation by enforcing an even higher increase in 2014. Already, the Commission has set out its stall for bigger increases in years to come.

I envy the commentators who are debating the theoretical and macro-economic arguments about the National Minimum Wage. For local shops, it’s an immediate, practical, and business critical issue, and a new cost they can ill afford.

This entry was posted by Victoria on Thu, 27/02/2014 - 14:30