Minimum wage increases should not be governed by political timetable

Increases in the minimum wage should not be decided by political considerations, according to the Chartered Institute of Personnel and Development (CIPD). Expected future restrictions on the supply of migrant labour could also exacerbate the impact on employers of increases in the minimum wage.

Charles Cotton, Reward Adviser at the CIPD, said:
We support a sensible minimum wage, and accept that regular increases in the rate are necessary to maintain the value and effectiveness of the measure for low paid workers and as an encouragement to employers to make more effect use of labour rather than rely on low pay.

However, increases in the minimum wage should not be governed by the political timetable. Action should be taken to build confidence in the timetabling of future increases, to avoid suspicions that they have been motivated by short-term electoral considerations rather than sound economic ones.

While a possible rise of around 4% would appear to be in line with average pay increases, it should be noted that a minimum wage above 5 represents a psychological breakthrough and may have a greater knock-on effect as a result.

Up to now, the effects of the minimum wage on profits and jobs in low paid service sectors have been offset by strong consumer demand. With consumer demand expected to moderate this year and next, a higher minimum wage could have a bigger impact on profitability, with possible consequences for jobs in these sectors.

The pre-election debate on immigration suggests tighter controls are inevitable. Future increases in the minimum wage will need to take into account the possibility that employers will be finding it more difficult to hire low skilled migrant workers. This restriction on supply at the lower end of the pay scales could reinforce the impact of minimum wages as employers compete for the increasingly scarce resource of lower paid labour. The Low Pay Commission will have to pay more attention to this possibility.