DK rips into a leftie who appears to be claiming that raising the minimum wage to £7/hr (a ‘Living Wage’) will be good for workers and good for businesses. Like, automatically. Always. ‘Cause it’d sure be stupid to do it if it would make some people worse off.
Let’s experiment, shall we?
I own a widget factory.
I have 100 employees turning out widgets for £5.80/hr, 40 hours/wk, 52 weeks per annum.
My wages bill is thus £1,206,400 per annum. Add in Employers’ NICs, and that wages bill becomes £1,287,667.
Let’s pretend my factory is very cheap and costs me £25,000 per annum to operate.
Each of my widgets costs £1 to make; I sell each widget at £1.20 for a 20% (entirely reasonable) profit.
Fortunately I sell 1,500,000 widgets per annum, leaving me with a nice profit of £487,333 per annum. I share this equally with my three business partners, giving us each a yearly income of £121,833.25. Once I’ve paid Employers’ NICs, my own NICs, and income tax on this sum, I’m actually taking home £70,031.
Suddenly, the law demands I pay my employees £7/hr.
Now my wages bill is £1,569,216 per annum (including Employers’ NICs) plus £25,000 overhead.
Selling 1,500,000 widgets per annum, now my profit has shrunk to £205,784 per annum, which I share equally with my three business partners, giving us each a yearly income of £51,446. Once I’ve paid Employers’ NICs, my own NICs, and income tax on this sum, I’m actually taking home £32,800. In raising my employees’ wages by £1.20 each per hour, my own income has shrunk by more than half.
If my widget sales fall, my income becomes even smaller. If my overhead rises (energy bills go up, you know), my income becomes even smaller. If I want to offset this by raising the price of my widgets, my customers’ business costs rise (at a time when they have already risen, because they too have to pay their employees more); alternately, sales of my widgets fall. I realise I can earn more than £32,000 as a school teacher.
Best-case scenario, my business becomes more expensive to run, my customers’ businesses become more expensive to run, the prices of our products rise, and our incomes shrink.
Worst-case scenario? My partners and I sack our 100 employees and sell the factory. My employees are now earning £0/hr. My partners and I go off to teach maths to left-wing dunderheads who, despite our efforts, will never understand that occasionally, just occasionally, raising the costs of a business means it is no longer worthwhile to operate that business.
Tax figures found here.