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East Midlands Chamber News

Minimum wage rises could lead to job losses

Claims that higher-than-inflation rises in minimum wages could result in job losses have been backed by the region’s biggest business-representation organisation.

The Institute for Fiscal Studies think tank has claimed that employers could be tempted to consider automation to replace human workers if the National Living Wage, which replaced the National Minimum Wage for workers aged 25 and over, continued to rise faster than inflation.

It said that in 2015 only four per cent of workers were paid the minimum wage of £6.70 an hour. But as a consequence of the minimum/living wage rising faster than inflation, to £7.50 today and going up to £7.83 in April, a rise of 16.86% in three years, workers previously paid just above minimum wage have seen their differential eroded.

By 2020, the National Living Wage is expected to be £8.50, 26.86% up on 2015, and 12% of workers are expected to fall into the category of minimum wage earners.

The spread of workers finding themselves in the minimum wage category is expected to include those in retail and reception positions, which are relatively easy to automate.

According to the IFS, automation is likely to drive job losses faster as the percentage of workers in the minimum wage sector increases. Having tripled in the past three years, the IFS estimates the critical point will come when a quarter of workers are minimum wage earners.

Scott KnowlesScott Knowles, Chief Executive at the Chamber, which represents over 4,100 business, said: “We have urged caution over minimum wage increases for a number of years, warning that from an employer’s perspective every rise puts jobs at risk.

“The maths are very simple. If the minimum wage rises by £1 an hour, as it will have done come April compared with 2015, then to balance the books employers either have to lay off one in eight workers or put their prices up, if they can.

“Add to that other Government-imposed costs, such as pension auto-enrolment and employer contributions to pensions – introduced with the very best of intentions - and the impact could result in companies seeking to reduce headcounts as a result of their increased cost base.

“There will also be pressures from workers who were previously paid slightly above minimum wage who will want their differentials restored and there are strong inflationary pressures resulting from the Brexit vote, the current high price of diesel and petrol and above-inflation rises in the cost of commuting by train, all of which will drive demand for higher wages.

“If not managed carefully, the combination could result in rising unemployment this year and a spiral of inflation way above the Government and Bank of England target of two per cent.”