Minimum wage: amendment (P.135/2013) – comments.

STATES OF JERSEY

MINIMUM WAGE: AMENDMENT (P.135/2013) – COMMENTS

Presented to the States on 2nd December 2013 by the Minister for Social Security

STATES GREFFE

2013   Price code: A  P.135 Com.

COMMENTS

The  Minister  for  Social  Security  does  not  support  the  Proposition  of   Deputy G.P. Southern of St. Helier .

To address a number of the points arising from the report –

1. Deputy Southern quotes the terms of a Proposition, adopted by the States in 2010 (P.26/2010), which established the States' aspirations regarding future minimum  wage  increases  relative  to  the  level  of  mean  weekly  earnings. Members  are  reminded  that  the  Proposition  was  adopted  with  a  crucial amendment that included the words "subject to consideration of economic conditions and the impact on competitiveness and employment of the low paid in Jersey".
2. Unlike the Employment Forum's recommendation, the Deputy 's report shows little  regard  for  the  uncertain  economy,  or  the  difficult  balance  between protecting earnings as well as jobs for the lower paid.
3. The evidence pointing to a need for continued caution includes –

• In  August  2013,  the  States  Economic  Adviser  advised  the Employment  Forum  that  the  global  and  local  economies  remain fragile. The vast majority of indicators did not suggest a sustained upturn in economic activity.
• The Fiscal Policy Panel reported in its November 2013 Annual Report that "Global growth slowed by more than forecast in 2012 and 2013 is expected to see the slowest growth in world output since 2009, below the long-run annual average ... Although growth is expected to accelerate next year, forecasts for 2014–2017 have been considerably downgraded."
• The level of economic activity in Jersey, as measured by GVA, fell by 4% in 2012. This is the fifth consecutive year that the economy has declined on an annual basis. The Fiscal Policy Panel forecasts GVA growth of between -2% and 2% in 2013, and between -2% and 3% in 2014.
• Consultation responses revealed a continued intention amongst some employers to control and freeze wages in order to minimise job losses.
• Minimum wage increases often have a differential impact on wages throughout the business. This may become unsustainable leading to job losses.
• Two-thirds  of  minimum  wage  jobs  are  in  sectors  that  rely  on competition  with  other  jurisdictions  (agriculture  and  fishing  and hotels, restaurants and bars). Jersey's minimum wage rate continues to be higher than the minimum wage rates in the UK (5.1% higher), Guernsey (2% higher) and the Isle of Man (3.6% higher). This has an impact on the competitiveness of these industries.

• In July 2013, the total number of registered unemployed people was 120 higher than a year earlier, and long-term unemployment was at the highest level recorded to date.
• As of December 2012, the number of job vacancies in the private sector was the lowest for at least 13 years.
• The Survey of Financial Institutions showed a real-terms fall in both profits and spending on employment in 2012.
• Employer  respondents  who  paid  £6.85  or  less  per  hour  were proportionately more likely than employer respondents generally to have made business changes relating to staff in the previous year (reducing overtime, staffing levels and making redundancies).
• Whilst  around  one-third  of  the  employer  respondents  suggested  a minimum wage increase to between £6.54 and £6.66 per hour, around one-third of the employer respondents suggested a minimum wage freeze or reduction, i.e. £6.53 per hour or less.

4. Deputy Southern is proposing a minimum wage of £6.77 per hour. None of the  employer  respondents  who  paid  £6.85  or  less  per  hour  supported  an increase to £6.76 or more per hour.
5. Deputy   Southern  bases  his  calculation  for  an  hourly  rate  of  £6.77  on  a

39.2 hour  average  working  week,  as  reported  in  the  2011  Jersey  Census. Given that the average working week is lower (by 0.3 hours) than the average reported in the previous census in 2001, he suggests that the Employment Forum  should  apply  the  figure  of  39.2 hours,  instead  of  40 hours,  in calculating the minimum wage as a percentage of the level of mean weekly earnings. The Forum has consistently made that calculation based upon a 40 hour week in order to provide a proportionate comparison each year. At no time has it been suggested that the figure from the latest census should be used. Forty hours is a standard number of weekly working hours used for conversions relating to wage comparisons across jurisdictions, for example, where the minimum wage is not expressed as an hourly rate.

6. Almost two-thirds of minimum wage paying jobs are in the hospitality and agriculture  sectors.  In  these  sectors,  employees  typically  work  more  than 40 hours per week. According to the 2011 census, 43 hours is the average per week in the hospitality sector and 45.4 hours is the average per week in the agriculture sector. If we decide that the number of weekly hours should not remain constant at 40 hours and, for example, make the calculation based on a 45 hour  week,  the  £6.63  minimum  wage  set  for  April  2014  would  be equivalent to 45.2% of the level of mean weekly earnings.
7. Deputy   Southern  states  that  the  Forum  has  matched  the  minimum  wage increase to the increase in the Retail Price s Index instead of the increase in the RPI (Low Income) figure which he considers to be the more appropriate index.  The Forum's  minimum  wage  recommendation  is achieved,  not  by applying any particular index, but by considering and taking a balanced view of all of the evidence, including the relevant indices and economic evidence.

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P.135/2013 Com.

8. If the Forum was to fix the minimum wage rate by reference to any particular index, the RPI (Low Income) figure is unlikely to be most appropriate index. According to the Statistics Unit, the greater annual increase of RPI (Low Income) over the 12 months to June 2013, compared with the other price indices,  was  primarily  due  to the  greater  weight  given  in this  index  to domestic  energy  costs  and  to public  and  private  sector  rent.  Half  of  the minimum wage earners in Jersey work in industries where accommodation is typically provided as part of the employment package, and the minimum wage Regulations apply a maximum value to the cost of that accommodation.

The Minister is satisfied that, in reaching its recommendation for a minimum wage increase of 10 pence per hour, the Employment Forum balanced all of the statistical data, economic evidence and responses from employers and employees, as well as considering jobs, competitiveness and the States' decision that the minimum wage should increase relative to 45% of the level of mean weekly earnings by 2026. The Minister is mindful of the wider direct and indirect impacts that an additional 14 pence per hour might have.

The  Employment  Forum's  consultation  revealed  that  businesses  continue  to  be concerned about the period of notice of new minimum wage rates and the uncertainty that this brings. To give employers as much certainty as possible in setting new tariffs and  prices,  the  Minister  made  an  Order  on  25th  October  that  will  increase  the minimum wage and the trainee rates, in accordance with the Employment Forum's recommendations, from 1st April 2014.

Members are urged to support the recommendations of the independent Employment Forum and to reject this Proposition.