I haven't really got the time to write this but need to let off some steam - ha!
The government has announced the statutory minimum wage must increase by nearly 10% from 1st April 2024. (this has been done ahead of inflation for at least the last 5 years).
Where will the money come from for employers to pay this huge increase because it is unlikely to come from increased productivity at this time? (another big issue)
The choices an employer faces is either or a combination of :
1) put up prices to pay for the increase.
2) absorb the cost out of profit.
3) reduce costs elsewhere to compensate.
4) close the business.
I will break down each of these options a bit further.
I will start with options 2 and 3 first.
Option 2 - absorb the cost out of profit. The vast number of jobs paying the minimum wage or affected by its increase are in retail, hospitality and social care. Many or even most of these businesses are all ready struggling. Is it realistic for them to be able to absorb this increase out of profit? Unlikely to say the least.
And anyway businesses must make profits - firstly to justify the business - why tie up capital - why invest in a business - why take the risk - why take the stress if there is little or no reward?
But more scientific than that - profit is the lifeblood of a business. Otherwise how does it invest - how does it maintain and improve? So many high street businesses for instance are already struggling to achieve this. Run down shops - gloomy pubs. The writing is on the wall. Our high streets are dying.
Option 3 - reduce other costs to compensate. Well most businesses are already likely to have done most of what they can achieve out of business necessity. Not many small businesses have fat on the bone because as I have said these statutory wage increases are annual events (and in my view the primary cause of inflation in our system.) Businesses like its employees are also struggling with increased utility costs - insurance costs and transport costs.
Is the answer really to keep the price the same but sneakily reduce the size of the packet or tin?
Reduce costs to compensate is often a euphemism for cutting staff costs - as this is usually by a long way the businesses major cost. Spelt out - if a business has to pay higher wages - the answer very often is to reduce on a ratio basis the number of staff employed to compensate. Under-manning. Redundancies. Unemployment. Recession. Strikes. Business inefficiency. Loss of service standards. Loss of business. We have seen it happen - which is why so many now prefer to shop on line etc.
Option 4 - Close the business. It is happening all around us when 1) above is not possible or sustainable and 2) and 3) do not provide the answer. Who is the beneficiary here ? No one.
So all that most businesses can do is attempt to put up prices to give them the revenue to pay the enforced extra wages.
Think about the effect of that.
If prices go up as a result of the necessity to pay higher wages - the benefit of the wage increase is quickly nullified because things will cost more. It makes the increase almost pointless. It is inflationary - and inflation is rightly seen as the poison in our system. ( it is not just those on minimum wage that get the increase. In reality differentials have to be retained to motivate and satisfy those staff taking on extra responsibility or have additional skills ).
In reality so many business are already struggling as trade is not there because of cost of living pressures and consumer choice . Putting up their prices further is hardly going to help.
To sum up the whole living wage thing is a con. It is inflationary - it is often destructive in job loss terms and business closure - and it provides no one with a real increase in income !!! It is therefore pointless. In reality just about its only purpose is a politicians attempt to convince their electorate they are getting a real increase. They are not. Sleight of hand at best.
THE ONLY SUSTAINABLE WAY FORWARD IS TO INCREASE PRODUCTIVITY - TO INCREASE THE NATIONS PER CAPITA INCOME. TO PAY OURSELVES MORE FROM THE CREATION OF REAL WEALTH FROM EFFICIENCIES AND INNOVATION. FOR MANY REASONS THIS IS NOT HAPPENING IN THE UK. (FOR ANOTHER DAY).
I have blogged on this subject before. Here is the link :-
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