Is the increase in National Minimum Wage causing a bigger issue for Retailers to manage?

Nov 8, 2018

It has been a tough year for retailers across the country, with a number of major high street names falling into administration. With pressures arising from expensive business rates and the growth of online shopping, it has been difficult to manage successfully.

But there has been one key issue that has been kept in the dark: the inexorable rising minimum wage. It is understandable that retailers haven’t blamed store closures on the lowest-paid workers. Nationally, however, the low-paid have experienced something of a pay boom in recent years, bucking the general trend of low or stagnant real wage growth for most workers. And this shift is accelerating the transformation of our high streets.

A recent report issued by the Office for National Statistics showed that the proportion of British jobs considered “low paid” had fallen to 18%, the lowest level since records began. The minimum wage per hour has risen about 17% since 2016 and, since 2008, the average income of the poorest fifth of households has risen 15%. That compares to 6% for the middle fifth and 4% for the highest-income households. In other words, incomes are not rising much overall, but are compressing and becoming more equal.

This is good news for the lowest-paid workers, but for high street shops and restaurants, many of which rely on low-paid workers, it means a steady growth in costs. Their results tend to show a gradually creeping rise in wage costs even as the number of employees falls or stays steady. The cost per employee at Byron Hamburgers, for example, rose by 8.9% from 2016 to 2017. Even if a company pays only a small proportion of its staff at the minimum wage, a rise at the bottom can ripple up through the pay scale through rising expectations.

Overall, the jobs market remains buoyant, but there has been a shift of roles within it. During the year to June, the retail and motor vehicle repair sector lost 74,000 jobs, the most dramatic shrinkage in headcount of any industry. Fortunately, other areas are picking up the slack, most notably manufacturing, hospitality, health and social work and arts or recreation jobs.

The question is whether this change in the composition of jobs, accelerated by minimum wage rises, will continue or at what point the total number of jobs stalls. One of the guiding ideas behind raising the minimum wage is that it not only delivers a pay rise but changes the set of incentives facing businesses. Namely, it was hoped that it would encourage companies to start putting money into productivity-boosting investments, so that the higher cost of labour pays for itself.
This could well involve some redistribution of work from one sector to another. If we can buy more efficiently online, for example, that has the effect of shifting jobs from shop floors to warehouses, which are introducing ever-more sophisticated technology to improve their productivity.

The government should be honest about these trade-offs and monitor carefully where we are in that process. Britain does need a pay rise, but altering the wage structure of the whole economy dramatically in a short period will also speed up the effect of changes in technology and consumer habits. A high street filled with bustling shops is one of the likely casualties of that process.

When the Treasury introduced its “national living wage”, it estimated that the measure would directly cost 50,000 jobs. The British Retail Consortium argues that is a dramatic under-estimate. In light of the ongoing closures in retail, now would be a good time for the Government to assess based on real-world evidence, rather than forecasting models.


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