Employers 'cut hours to claw back rise in basic wage': "Employers 'cut hours to claw back rise in basic wage'

By Malcolm Moore, Economics Correspondent (Filed: 24/03/2005)

The introduction of the minimum wage led to employers cutting the number of hours that staff worked, new research showed yesterday.

In a paper presented at the annual conference of the Royal Economic Society, Professors Mark Stewart and Joanna Swaffield claim that paid working hours have fallen by between one and two hours a week for low-income staff.
'The implication,' said the authors, 'is that about one quarter of the increase in basic weekly earnings of minimum wage workers was clawed back by the estimated reduction in basic hours.'

They added that the National Statistics Labour Force Survey indicated that more hours had been cut per week, but that the LFS is less precise.
The minimum wage was introduced in April 1999 at [GBP]3.60 for adults and has since risen four times, or by 35pc, to [GBP]4.85, far faster than inflation. It is set to rise to [GBP]5.05 in October with a further rise to [GBP]5.35 in April 2006.

The British Chambers of Commerce has called for future rises to be capped at the inflation rate.

The CBI employers' body said a growing number of its members had indicated that they would cut working hours as the minimum wage rises. Referring to the CBI employment trends survey, which questioned 7,000 firms, a spokesman said: 'In 2000, 5pc of our members said they were going to cut working hours. By 2004, when the minimum wage had risen to [GBP]4.85, 18pc said they would cut hours.'

He added that the reduction in working hours could have a more significant effect on part-time workers.

At £5.05 an hour, a company employing someone for 38 hours a week will have to pay £9,978.80 a year, an increase of £395.20 from the current wage level. There would also be an effect from increased national insurance contributions. The Conservatives have pledged to implement the rises, should they be elected, but accused Labour of giving with one hand, and taking away with the other, since 4m extra people, the majority of which are on the minimum wage, now pay income tax and national insurance.

17 February 2005: Minimum wage hits job prospects