Rising minimum wage could lead to job losses

Minimum wage is set to rise again in 2018, while that may be good news for many, it could result in job losses for some as companies replace costly living employees with computers.

The minimum wage – now known as the National Living Wage (NLW) – is set to rise again this year to £7.83 in April for over 25-year-olds.

The latest rise means that workers aged over 25 will have seen their minimum hourly wage rise by over a pound in the past three years from £6.70 in 2015.

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More employees now paid minimum

That is a much faster increase than has been seen in wages in general, meaning more and more people are seeing their wages set by the NLW.

The percentage of employees aged over 25 who are paid the minimum wage will treble between 2015 and 2020 with 12% being paid the NLW by the end of the decade.

On the face of it, this is great news, with more and more people seeing their wages rise as the NLW increases.

But, it could also lead to job losses, according to the Institute for Fiscal Studies (IFS) think tank.

The problem is as the NLW rises it brings people in different types of work into the minimum wage net. Back in 2015, many of those being paid the minimum wage were in "personal service occupations", according to the IFS.

These are jobs that can’t easily be done by machines, such as bar workers or cleaners.

But, as the NLW rises it starts to affect other occupations. By 2020 people being paid the NLW are more than twice as likely to be in the 10% most routine occupations – such as cashiers and receptionists – than they were back in 2015.

Graph: Jobs most at risk of automation (Click for larger version)

Image courtesy of PwC

Computers becoming cheaper than humans

This creates a problem as such jobs are far easier for employers to automate – who hasn’t noticed the increase in self-service cash desks at the supermarket or check-in stands instead of hotel receptions.

So, as the NLW causes wage bills to rise employers may look at whether more automation will save them money, leading to rising unemployment.

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“The fact that there seemed to be a negligible employment impact of a minimum set at £6.70 per hour – the 2015 rate – does not mean that the same will be true of the rate of over £8.50 per hour that is set to apply in 2020,” says Agnes Norris Keiller, a research economist at IFS.

“Beyond some point, a higher minimum must start affecting employment, and we do not know where that point is.

“The fact that the higher minimum will increasingly affect jobs that appear to be more automatable is an additional reason why extremely careful monitoring is required.”

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