Does minimum wage hurt small businesses?


Raising the minimum wage is a complex issue, possibly resulting in a myriad of consequence

In recent weeks there has been a lot of pages in the press covering various opinions on the state of the minimum wage in the UK: should it be increased? left alone? how to pay for any rises? who’s responsible? who’s affected? All of it fuelled by larger concerns surrounding expanding income inequalities.

Unite, the British and Irish trade union, wants to increase the minimum wage to £7.81 an hour, arguing that an increase would boost the economy as well as lift many low paid workers out of poverty. Research commissioned by Unite has calculated that a £1.50 increase on the current minimum wage level of £6.31 would generate an estimated £2.1bn in revenues for the public purse and generate 30,000 jobs, providing a huge boost to national prosperity and mood. It is estimated that about 4.6m low paid workers would benefit from an annual salary boost of £1400. Rather than cost jobs, as many have predicted, the boost in the minimum wage would actually create jobs as more money flooded into the economy through a growth in household consumption.

At the recent Labour Party Conference, Ed Milliband revealed Labour’s plans to increase minimum wage to more than £8 if his party in elected to government in 2015. Labour’s plans are to create more wealth generators through attempts to equalise wage disparity. Milliband envisages moving away from state subsidy of low wages through tax credits, and redistribute this dependency onto businesses – businesses, who aware of Milliband’s plans, have accused the Labour leader of waging a ‘flight to populism’ and not looking after the country’s real wealth generators: business.

The CBI – Confederation of British Industry – have waded into the disagreement by pointing out that the current minimum wage is at the highest it can go. Any further increase would put too much pressure on businesses, particularly small businesses operating with tight margins. It is often small businesses that rely most on employees willing to work for the minimum wage. Any increase would force businesses to rise prices to pay for it, which could result in customer backlashes and loss of income. A loss of income would mean no new jobs, and possibly a cut in existing jobs, all of which would be disastrous for the economy.

Raising the minimum wage is a complex issue, possibly resulting in a myriad of consequences – both good and bad, depending on whose argument you believe. Yet with one in five people in the UK working on low wage and struggling with the rising cost of living, it is an issue I expect we will read a lot about as the 2015 election looms.