The Minimum Wage Effect On Jobs – Talk To Heston Blumenthal

There is a comforting myth in public policy these days, that raising the minimum wage doesn’t have an effect upon the number of jobs in the economy. This is, sadly for the low paid, a lie. It’s a political lie too. Reality can be found by going and talking to people like Heston Blumenthal. Or even, by just reading newspaper articles about his restaurants:

He may be the nearest thing Britain’s food scene has to an alchemist but that cannot shield Heston Blumenthal from the cold winds blowing across the country’s restaurant business. Accounts filed last week for Snail Porridge Limited, parent company of the chef’s flagship restaurant The Fat Duck, his gastro pub The Hind’s Head, his TV programming arm and several other businesses showed losses more than doubling last year. In the year to 31 May 2018, turnover at the company dropped only marginally, to £12.4m, but post-tax losses increased, from £700,000 to £1.7m.

This isn’t exclusive to him. Gordon Ramsay is having the same problem, in a different part of the market so is Jamie Oliver. So, what is it?

But the problems they’ve got are happening across the board. The higher-end restaurants are having to cope with the same rising costs of ingredients, staff, rent and rates.” Among the risk factors cited in Snail Porridge’s accounts are Brexit, national living wage increases and rising food prices.

Ah, wages.

“To provide a fine-dining experience at a realistic price for the diner, but which is also profitable, is not easy and it requires careful management of costs, principally relating to ingredients and labour,” the company said.

Labour.

A rough guide to accounting for restaurants is that 30% of net revenue – ie after VAT – will go on rent, 30% on ingredients, 30% on wages, with that last 10% going to capital as profits. If, indeed, there are any. This is rather higher than the labour component in most to many other business sectors. It’s also true that restaurants are, as in the US, where much of the country’s minimum wage labour is employed. So, effects of a minimum wage rise are likely to turn up here.

As they are. Which brings us to the reality about that minimum wage. Economic research doesn’t say that rises have no effect. Rather, that small rises from a low base seem to have no discernible effect. Simply because an economy is a big and complex thing and small changes that affect few people don’t have much effect that we can see.

Larger changes have larger effects. Our rough rule of thumb here being that 45 to 50% of median hourly wage – we should use the blended part and full time hourly wage here – as a minimum has no great effect that we can easily identify. Above that we do start to see it in the national numbers.

What’s the current target for the national living wage? 60% of median wage. This from a Conservative, in name at least, government. Damn fools.

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Jonathan Harston
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Jonathan Harston

But if the minimum wage is 60% of yesterday’s median wage, then tomorrow’s median wage is higher – which means that the minimum wage has to be raised again.

timworstall
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timworstall

Would be true or the mean but not the median