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Economic and fiscal impacts of raising the minimum wage

07 July 2017

The Chief Minister’s Department has published a report by Oxera Consulting that estimates the potential economic and fiscal impacts of a significantly higher minimum wage in Jersey.

Oxera report: Raising the minimum wage - economic and fiscal impacts (on States Assembly website)

The report, which has been produced at the request of the States Assembly, examines the impact of increasing the minimum wage to 45% of mean weekly earnings, or 60% of median weekly earnings. This corresponds to increases of 10% and 17% respectively in the 2017 rate of £7.18 per hour. 

The 45% minimum wage level has been agreed by the States’ Assembly as the target to which Jersey should aspire, seeking to achieve this by 2026 at the latest, subject to economic conditions.

In examining this, the report explains that “Raising the minimum wage would have the direct impact of increasing wages for a significant number of low-paid employees, which could in turn reduce poverty, improve welfare, and increase spending in the economy. At the same time, raising the minimum wage could impose higher costs on businesses, which could ultimately lead to negative impacts on employment, and higher inflation, as businesses pass these costs on in the form of higher prices.”

Overall, the report estimates that increasing the minimum wage to 45% of mean weekly earnings would see incomes increasing for nearly one quarter of employees – 14,800 employees at the lower end of the earnings distribution. This includes the impacts on those who are currently earning the minimum wage, as well as those on lower incomes who would benefit from the knock-on effects of increasing the minimum wage.

As a result, consumer spending in the economy would be expected to increase by £2.4m at the 45% rate. However, there would be an increase in firms’ costs and, as a result, a number of other consequences

  • around 60 net job losses, concentrated in the hospitality, agriculture and retail sectors
  • an estimated additional 400 employees would see a decrease in their incomes from reduced hours worked
  • prices across the economy would be likely to increase by less than 0.1% as a one-off effect of a higher minimum wage being set
  • slightly lower firm profits (i.e. a reduction in shareholder value) of less than 0.1% of economy-wide profits
  • economy-wide productivity would be likely to increase marginally by 0.1% as a result of sectoral shift
  • the impact on government finances would be broadly neutral – with an estimated net gain of £300,000 per annum

These figures are based on a range of assumptions, and as the report says, these estimates should be seen as indicative of the likely consequences. The impacts could play out differently in practice, depending on the actual response of businesses and employees.

In considering the report, the Chief Minister, Senator Ian Gorst, said “It is clear that a significantly higher minimum wage could bring both positive and negative consequences, with many employees benefitting and potentially higher consumer spending, but potential job losses and lower incomes for some. Overall, however, this report shows that the States’ aspiration to achieve a minimum wage of 45% of earnings by 2026 is too slow. I therefore want to accelerate the timetable, delivering this change by 2020. This will benefit many workers, and support our overall objectives for our economy, population and society. I will be bringing a proposal to the States later in the month to deliver this.

“In doing this, I want to work with other Ministers and Members in looking at how we could support the sectors most affected, promoting productivity and offering support to help businesses to adjust to the proposed change.”

The Social Security Minister, Deputy Susie Pinel, added “I have asked the Employment Forum to take this report into account as part of this year’s minimum wage review. I trust that it will provide valuable information that will help the Forum to reach a recommendation on the 2018 minimum wage in September.”

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