Reference no: EM131234354

Concerns over the NMW For six years it was the dog that didn't bark, but business concern about the government's minimum wage is slowly mounting, thanks to an unlikely alliance of hairdressers, hoteliers and fish-friers. The national hourly rate for adults over 21 was increased in October 2003 from £4.20 to £4.50, the fourth upward adjustment since the measure was proposed by the incoming Labour government in 1997. Gordon Brown, the chancellor, won applause at the Labour Party's conference by predicting it would soon rise to over £5. Until now, the steadily rising rate has caused nothing like the backlash among employers that was predicted by its early opponents. Most economic studies have also shown little, if any, negative impact on job creation. But the smooth ride enjoyed by the government may be coming to an end as a growing number of smaller employers and industries in poorer parts of the country begin to voice opposition to further increases. Stephen Alambritis, of the Federation of Small Business, says his members are worried that any economic downturn could worsen the problem and would like to see more consideration of regional economic variations. ‘The governments have been lucky; because of the strength of the economy no one is really against the idea of a minimum wage anymore,' he said. ‘However, the problem is that the level is creeping up to a point that certain regions and sectors are beginning to find it very difficult.' One such industry is hairdressing, traditionally one of the lowest-paid occupations in the country. Thousands of low-paid employees have benefited, but smaller salons fear they cannot continue to meet wage increases. Ray Seymour, general secretary of the National Hairdressers' Federation, said a particular worry is the Low Pay Commission's proposal to extend the slightly lower minimum wage for 18-21-yearolds to trainees under the age of 18. ‘The trouble with fighting this is it's very hard to single out the minimum wage as directly causing problems,' he said. ‘It's the totality of new costs on employers like the Working Time Directive that really add up.' Others warn that the increases are encouraging some businesses to break the law. ‘It's becoming very common among smaller hoteliers to keep employees off the books,' said Roland Haywood, chairman of the Blackpoll Private Hotels Association. He estimates that the black market wages rate in the town's hotels - where a room can cost as little as £10 per night - is actually around £3.50 per hour. Despite this, few trade bodies argue for an end to the minimum wage entirely - they just worry where the increases are leading. David Audrey, vice president of the National Federation of Fish Friers, said: ‘we don't have any problem with it in principle, but the government needs to be careful about increasing it beyond the rate of inflation, otherwise most self-employed fish friers will end up paying themselves less than their staff.' Research by the Organization for Economic Co-operation and Development, the rich-country think-tank, suggests that workers in their teenage years and early twenties have seen their job prospects suffer when the minimum wage has been set too high. The clearest example of this was Spain, where employment was hit when the adult rate was extended to 16-year-olds.

Question

1 What are the main concerns raised in the case study?

2 How does this case study relate to our earlier analysis of the NMW?