At the Eastern and Western fronts of the continent of Europe, two countries, Greece and the UK, appear to follow very different paths when it comes to jobs and growth. This week the Greeks wait for another decision on access to bail out funds to pay their bills. And although not hitherto the most compliant of debtors, their Parliament on Friday passed a strict austerity programme. It included cutting the cost of employment: public sector salaries, some work related benefits – e.g. holidays and benefits – and the minimum wage.
By contrast, the direction of travel in the UK is different. Employment costs look set to rise. In addition to the fixed costs employers pay on top of wages – for NI contributions (at c. 14 per cent) holiday pay, a portion of statutory benefit and compliance, they will soon face extra costs for the new pension scheme and paternity leave. But beyond these statutory obligations there is now pressure to increase costs further as last week’s ‘living wage’ campaign showed.
Politicians took to the airwaves to support the campaign which aims to force employers to pay a higher ‘living wage’ – which pressure groups want to replace the minimum wage of £6.19 per hour. Government bodies, councils and listed companies would be asked to pay more, £8.55 per hour (£7.45 outside London). Labour’s leader, Ed Miliband, threatened to ‘name and shame’ those who don’t. Like London’s Mayor Boris Johnson, Labour wants to pay Whitehall contractors the going rate although Labour could also rule that contracts only go to firms who pay the living wage rate.
What they don’t say is that is that for some companies, the option would be higher rates for some employees and lost jobs for others on ever tighter budgets, higher employer costs, and tougher global markets for goods. Protagonists acknowledge the difficulties as employers’ wage bills could rise at the stroke of a pen from a relatively small 0.5 per cent in banking, to over 6 per cent in the catering and bar trade. On top of that are the employers’ non-wage costs.
If companies can afford to pay higher wages and wish voluntarily to do so, of course that’s to be welcomed. But if populist pressure and regulation are selectively applied to force some companies to pay above what is legally required, the consequences could be serious. Just as other countries are reforming labour markets and the structures in which business can confidently operate, the UK would be taking another path.
Not only would companies have to contend with statutory costs on employers. But investors could no longer be certain of UK liberty and protection under the law. They would also face the consequences of pressure-group politics, in which politicians abandon the labour market to the unpredictable operations of twilight law.
*Dr Sheila Lawlor is the Director of Politeia
A longer version of this article can be read at The Huffington Post.