With the Labour Party now in-situ, changes are being proposed to employment law which have the potential to be transformative to the UK, where the minimum wage is a key area being scrutinised. The proposal to scrap the tiered structure of the minimum wage, which means that there will be no difference in treatment, between those aged 16 year olds or those over 21 has the potential to cause a significant impact in the job market in terms of entry level roles. The question is, what are the likely second order consequences?

In the first instance, there is likely to be some wage inflation pressure, as people aged 21 look to create a premium for themselves. Whether businesses pay it is another question. Probably what is more likely, is that companies which had been offering entry level roles for school leavers, may decide to hire less people, creating fewer opportunities. If there is a silver lining, this may well lead to 16 year olds deciding to stay in school, in order to better their chances of competing in the labour market.

The challenge though is that the UK economy is sluggish at the moment, and whilst it is not technically in recession, entry level vacancies are falling and businesses are struggling. Insolvencies are on the rise and when one analyses the sectors most likely to recruit minimum wage jobs, it is these sectors where redundancies are being seen at the moment. For example, just in the past week, Carpetright was put into administration, with up to 1800 jobs at risk, mainly as customer advisors. Similarly, the Body Shop have also been in the news recently, with 500 jobs likely to go as they plan to close 75 stores.

Retail is definitely under pressure, with this being amplified by tax policy. As mentioned before, the tax on tourists is also causing an issue for the hospitality industry, as people choose to cut short their stays in London and shop elsewhere instead, which is having a knock on effect on hotels, restaurants and other establishments catering for tourists. This is then leading to demand scaling back, leading to lower recruitment demands. This is not even touching on the implications of the cost of living crisis. For businesses therefore, the situation is likely to prove challenging, as regulatory changes result in wage costs increasing at a time of reduced consumer demand. With that, these sectors are likely to continue to be under pressure this year, with sluggish recruitment overall.

The other less well understood change is the proposal to scrap the category of worker, which will result in companies which have their business model reliant on the gig economy, having to prove that people are self employed, which for many, will be a much tougher challenge. This combined with zero hour contracts being scrapped along with full employment rights being available from day one means that the business model for some companies may need to be completely re-written. As a minimum, even if people are then paid more, businesses with low margins are likely to then pass those costs onto consumers, resulting in cost increases.

For the Labour party, and the trade unions, jobs lost in this process may well be a part of the collateral damage they are willing to take, in order to ensure that people working are paid more equitably. Equally the trade off is likely to be real. With that, as these policies are implemented, there is a real risk of both unemployment and inflation rising at the same time, due to the factors listed above.