Think-tank counts the cost of a minimum wage

The introduction of a national minimum wage of as little as pounds 3.50 an hour could result in the closure of small firms and shops, job losses and higher prices, according to preliminary research from the Employment Policy Institute, an independent think-tank.

Interviews with a wide range of employers likely to be affected by a minimum wage, to which the Labour Party is in principle committed, suggested that its effects could be dramatic. Even allowing for the fact that firms have an incentive to exaggerate the likely effects, as many as 3.5 million people who are currently paid less than pounds 3.50 an hour would become more expensive to employ.

``A national minimum wage would mean a total restructuring of all these firms' pay,'' said Fred Bayliss, the EPI researcher.

He identified catering and related industries such as hotels, textiles, industrial cleaning, hairdressing and healthcare as those that would be extensively affected by the introduction of a legal minimum. For example, more than two-thirds of part-time women and about a half of full-time women working in catering and related businesses earn less than pounds 3.50 an hour. In textiles and clothing, which is covered by collective agreements with unions, around a third of female staff earn less.

Mr Bayliss also suggested that there could be significant industrial restructuring in some industries where big employers generally pay higher rates of pay than small ones. In retailing, for instance, most big supermarkets pay most staff a basic rate above pounds 3.50. It is small and specialist retailers who pay less.

``The supermarkets know a national minimum wage will push out smaller units and direct custom towards them. They are not displeased,'' he said.

An even broader range of businesses would face knock-on effects if the minimum wage was set above the bottom of their pay scales. Any attempt to restore differentials would raise pay at all levels. This effect could be considerable in areas such as local authorities and motor-vehicle retail and repair, where there are graduated skill-related pay scales.

The firms co-operating with the EPI told Mr Bayliss their response could range from passing on higher costs to customers to cutting jobs in industries like retailing where stiff competition made it impossible to raise prices. Some said a minimum wage would create a strong incentive to switch work to the ``informal'' economy.

Many were concerned that a minimum wage would not simply set a floor to wages, but would be used to raise the incomes of the low-paid relative to the average over time.

The employers also raised practical concerns, such as whether a lower training rate for young employees would be allowed, whether the introduction of a national minimum wage would be phased in and how it would be enforced. They voiced strong opposition to a new set of government inspectors, and some suggested using the national insurance inspectorate.