What are the impacts of a minimum wage increase on an organization with employees in the UK?

 

What are the impacts of a minimum wage increase on an organization with employees in the UK?

 

            When an employer takes on an employee, he will be cautious about making specific investments. After all, by making these investments he renders himself vulnerable. The employee is handed a powerful tool, because the employer’s specific investments will be lost if he leaves. With this tool, he is in a position to rob the employer of part of the profits of that investment, in future wage negotiations, by threatening to leave. An employer can, of course, anticipate this problem. So his reaction is to postpone part of his investments (Lehmbruch & Waarden 2003). Less investment is made in specific training than is socially desirable. This problem also exists the other way round: an employee is sensible not to buy a house near his current employer, because it weakens his position in future wage negotiations. The company and the employee have a mutual interest in solving this problem. After all, by arranging matters in such a way that the employment relation functions as efficiently as possible, the total expected profit from the employment relation increases. If the pie is bigger, there are more slices to go round. Both parties ultimately benefit. The solution to the holdup problem is obvious. By fixing the future wage level at the start of the employment relation, prior to specific investments being made, the necessity for future negotiation is removed (Figart 2004).

 

In a corporatist economy, there are two types of renegotiation. The first type is renegotiation by corporatist organizations. These renegotiations remove the effect of aggregate shocks. The outcome of these negotiations cannot be influenced by individual companies or employees. The second type is individual renegotiation, in those cases where corporatist renegotiations do not have the desired result due to firm-specific shocks (Bluestone, B & Bluestone, I 1992). The British campaign to protect low-paid workers lies between two alternative models. A first model, characteristic of many member states of the European Union, is defined by a long established and strongly embedded system of low wage regulation, constituted through either minimum wage legislation or a high level of collective bargaining coverage, or a combination of both. The reason that living wage campaigns have not diffused more widely may be that, compared to the USA, British workers are still afforded slightly stronger protection. The UK minimum wage is higher, unions are stronger, and the benefit regime is less stringent. But conditions for the low paid are not so far behind than those in other countries. The UK has the highest share of low paid workers in the European Union. The government has failed to address the mounting problem of child poverty. The minimum wage is perceived by many employers as the going rate rather than an absolute minimum Many workers have lost opportunities for wage advancement as new contracts for business are won on a low cost basis, with wages factored in at minimum rates There is a great deal of campaigning to improve low pay in Britain, but this has more in common with a European model than any other models (Slomp 1996).

 

The living wage campaign in East London is similar to some of the US living wage movements; however, it is also integrally linked with, and a catalyst to, a broader coalition of low pay campaigns. These campaigns increasingly focus on the legal arena at the level of both the European Union (EU) and the UK. Examples include campaigns to improve the relative level of the National Minimum Wage (NMW) and extensive lobbying for changes in the EU Directive on public procurement to incorporate a fair wage clause. Further, groups campaigning for equal pay for men and women increasingly recognize that the concentration of women in low paid jobs, most of which are part-time, is a major contributor to the gender pay gap. Thus, calls from feminist advocates and activists for gender pay audits and new guidelines for contracting organizations to avoid a two-tier workforce add further fuel to the fight against low pay (Screpanti 2001). Union involvement in wage bargaining has been guided by three central goals: wage predictability, wage increase and wage equality. Only the first one, wage predictability, is generally shared by employers. The desire for wage predictability has been expressed in the struggle to fix occupational or industry wage rates for one or two years and at time rather than piece rates. The early fixed-wage rates were originally aimed at preventing arbitrary employer decisions on wages and “unfair” wage competition by low-pay firms. Once some form of uniformity in wage rates was reached, the unions focused on wage adaptation to rising prices, a major issue in twentieth century collective bargaining and conflict. As a principle, wage adjustments for inflation have generally been accepted, but the way in which it is done has remained a source of conflict between unions and employers, and sometimes with the national government (Scharpf & Schmidt 2000). The increase in minimum wage would make sure that the personnel will be motivated and perform better. On the other hand the increase in minimum wage would create additional expenses for a UK company but with motivation and better performance the company can recover from the additional expenses. With motivated personnel come better services to clients or better products thus higher profits to the company.

 

References

Bluestone, B & Bluestone, I 1992, Negotiating the future: A

labor perspective on American Business, Basic Books, New York.

 

Figart, DM 2004, Living wage movements: Global perspectives,

Routledge, New York.

 

Lehmbruch, G & Waarden, F (eds.) 2003, Renegotiating the welfare

state: Flexible adjustment through corporatist concertation,

Routledge, New York.

 

Slomp, H 1996, Between bargaining and politics: An introduction

to European labor relations, Praeger, Westport, CT.

 

Scharpf, FW & Schmidt, VA (eds.) 2000, Diverse responses to

common challenges, Oxford University Press, Oxford.

 

Screpanti, E 2001, The fundamental institutions of capitalism,

Routledge, London.

 

 

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