Tuesday, 15 October 2019

Higher minimum wage means less money

Who can disagree with the notion of employers paying a decent minimum wage? But this can come at unaffordable cost.

The UK, like the US and other countries, sets mandatory minimum wage levels that employers must pay workers. In Britain the actual figure varies according to age but currently tops out at an hourly £8.21 for anyone aged 25 and over.

A minimum wage increases pressure on businesses not only to finance each employee's take-home pay but also to cover other associated costs such as tax and National Insurance liabilities.

So hiring more workers on shorter hours gives companies clear economic incentives to hire more workers in part-time roles; if employees aren't given enough hours to trigger income tax or National Insurance thresholds, the employer saves a lot of money.

Add other factors to the miserable mix such as increased workplace automation plus a continued rise in online consumer spending (rather than at brick & mortar stores) and the future picture of employment snaps into sharp focus.

In a tight economy, taking opportunities to slash costs proves irresistible.

The Tesco example

Of course, a majority of low-paid jobs are unskilled and exist primarily in the retail and service sectors. But what were once considered entry level positions for kids leaving school now, after the 2008 crash, now provide staple income for too many households.

Such "McJobs" now attract a vocal but impoverished middle class - one demanding a minimum wage that will cover mortgage, food and other spiralling living costs.

Retail chain Tesco laid off 9,000 people from its workforce at the start of 2019. This was due to increased competition with other stores offering competitive discounts on groceries. Food counters were therefore the main casualties..

But since then, the retailer has been hiring again; this time employing restructured "flexible contracts".

These new jobs usually offer 10 hours per week guaranteed work with possible additional shifts to be agreed monthly in advance with store managers.

This basically allows Tesco to regulate its payroll on a monthly basis - no doubt taking into account regular cycles in consumer demand as well as any unexpected external developments.

Target in the US

To get an idea of the real impact on employees of the minimum wage, consider the case of retail giant Target in the US.

By reducing workers' shifts to below 30 hours, Target has been able to dodge liability for providing costly job benefits. However, there's more to it than that.

Here's the story as told by CNN Business, including real-life accounts by ex-employees of the store:

CNN Business
Nathaniel Mayersohn
14 October 2019

"Target raised wages. But some workers say their hours were cut, leaving them struggling"


Two years ago, Target said it would raise its minimum wage to $15 an hour by the end of 2020. The move won praise from labor advocates and put pressure on other companies to also move to $15.

But some store workers say the wage increases are not helping because their hours are falling, making it difficult to keep their health insurance and in some cases to pay their bills.

CNN Business interviewed 23 current and former Target employees in recent months, including department managers, who say hours have been scaled back even as Target has increased starting wages. Many of these workers say the cuts, which come as Target's business is in its strongest position in more than a decade, have hurt them financially. CNN Business agreed to withhold the last names of several of the current employees and the city where their store is located so they could speak freely.



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