Is the Telegraph right that unemployment will rise because of the NLW and Coronavirus?

Apr 24, 2020

Having recently reflected on the impact of the minimum wage on employment over the last ten years, it struck me just how brilliant the retail, leisure and hospitality sectors have been at creating work whilst supporting a rise in minimum wage to 60% of median earnings. This article by Ryan Bourne, chair for the public understanding of economics at the Cato Institute, in yesterday’s Telegraph “Coronavirus and the national living wage could be a deadly combination for low-paid jobs” reflects on many of the same points as my recent blog post, but then considers the impact of the lockdown on future employment.

ShopWorks has spent the last ten years helping retail, leisure and hospitality companies schedule staff and predict demand and therefore staffing levels. Over the last few weeks we have been talking to our customers about their exit plans from lockdown, so we feel particularly well qualified to discuss this Telegraph article.

Whilst I agree that there will be an impact on employment I don’t believe it will be as big as the article predicts in the service sectors and I also don’t blame the national minimum wage. Instead the culprit will be demand, i.e. the number of people in a coffee shop, the number of people who want to attend a spin class or buy petrol. Demand is directly proportional to hours worked and therefore staffing levels for our customers. Assuming we don’t suffer from deflation after our period in lockdown, enough coffee sales will cover the staff costs required to serve the coffee at the national minimum wage, not enough coffee sales means less baristas are needed, but we don’t believe less baristas will be fully reflected in unemployment figures. Over many years these “cost of sale” and staffing level models have been refined to account for the national minimum wage.

Demand is likely to be down after the virus, but using tools like ShopWorks, employers will have no trouble adjusting the hours worked to the demand. The impact will be in lower hours per employee across the sector, for example a zero-hour contract and a 20-hour per week contract employee who may have been getting 20 and 35 hours respectively will now likely be getting only 10 and 20 hours per week if demand is lower; almost halving the cost but without sending anyone to the dole queue. This is a modern retailer’s way of adjusting costs to revenue and will reduce the amount of money that their staff take home. This high level of employment flexibility supported by tools such as ShopWorks is the very reason the service sectors were able to adjust to the minimum wage increases whilst maintaining full employment before the crisis. They will help the sector manage a drop in demand and scale back up when demand returns.

Having spoken to our customers, they recognise the cost of a high churn rate on staff and they will want to retain as many as possible for when demand does return, and sharing less hours amongst the same staff is their way of doing this.

As demand picks up (and aren’t we all dying to eat out and attend a real gym class), the systems in place will scale the hours up to match demand and those retained staff will see an increase in their income again. In fact, we are using the lock down period to accelerate the development of our AI prediction tools which will ensure even more accurate demand forecasting.

We will continue to monitor this dynamic and I’ll keep you informed on this blog page.


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