The Impact of Increase the National Minimum Wage on Productivity

Chapter 1: Introduction

The concept of the National Minimum Wage (NMW) and its implications for companies or nations significantly impact the performance of small or large operating firms (Georgiadis, 2006). Many theorists believe that this regulation has increased the labour cost in small firms and, in return effect positively an organisation’s overall performance (Wincenciak, 2010). The relationship between wage and productivity will be described in this study through Wage Hypothesis Theory (Curtiss, 1963). This study will explore different views presented by this theory on how firms can maximise their profit through employment development

Research Aims and Objectives

The present study aims to discover the effect of Minimum National Wages on a firm’s production. The focus of the study is to explore the underlying relationship between National Wages and employee performance and how this relationship contributes to the increases or decreases in a company’s overall efficiency and performance. Keeping in mind the above-mentioned facts, the following aims and objectives are drawn for the study.

The present study aims to discover:

• The relationship between Minimum National Wage and firm productivity.
• The effect of the Minimum National Wage on a firm’s behaviour in different economic conditions.
• The strategies that companies adopt in influencing firms' behaviour and productivity.
• How companies are incorporating technology to substitute labour to reduce expenses and increase productivity.

The present study will focus on studying the above-mentioned objectives of the research.

Chapter 2: Literature Review

Much work has been done in examining the impact of the National Minimum Wage on employees’ performances. However, how this impact affects organisational performance and productivity is still to be discovered in detail (Aslam, 2003). Many researchers claim that the relationship between Minimum Wages and the behaviour of employees is neutral; therefore, the direction was shifted to explore its effect on a firm’s productivity and behaviour (Portes, 2015). The results of those researches indicated that the effect of Minimum wages on the firm’s behaviour is a strong area to be studied as it determines the company’s productivity and operations.

Two studies on the Impact of National Minimum Wages were carried out by Draca et al. and Galindo-Rueda Pereira in Britain, exploring the impact of NMW firm’s productivity. The findings of the study reveal that the implication of NMW has resulted in decreasing the profitability of many firms, especially small firms. The results suggested that in terms of long-term productivity, this concept might have a significant effect on the behaviour of employees, but they don’t seem to be beneficial for achieving long-term targets of productivity (Bondibene & Riley, 2013).

However, the results of these studies cannot be applied universally as there are limitations to their studies. They were carried out within a small time frame, and the data comprise industrial information. Generally, it was found that by increasing labour productivity, the companies raise their capital, which positively affects their overall industrial performance. (Wincenciak, 2010). There is still a rift between theorists as some think setting National Minimum Wages will affect productivity.

In contrast, some think no such significant relationship exists between these two variables. (Relly, 2013). The subject of how the National Minimum Wages affect the employment system and the firm’s productivity still needs to be discussed and explored more.

National Minimum Wage and Firm’s Response

The incorporation of the National Minimum Wage has helped to increase the labour cost by raising the earnings of low-paid workers (Wage, 2014). However, there are not many studies available to support the fact that NMW affects the overall operating behaviour of employees. On the contrary, many small firms react negatively to this change as their resources do not help them increase their employees' wages. Thus, they have to cut their overall profit margins. Several researches had been conducted after the introduction of NMW in 1999 to analyse the relationship of National Minimum Wages with employee's and firm's productivity (Wincenciak, 2010).

The prominent among them was research carried out by Rabecca Riley and Chaira Rozza. Their findings indicate that the insinuation of NMW has resulted in high labour costs in small firms since 2000. However, the employees were still paid on average during the recession time. In addition, they also report that small firms also responded to these changes as they claim to add more value per employee to raise their efficiency and productivity. (Wilson, 2012). Many researchers believed that the primary purpose of this change was that the companies wanted to increase their capital and production outputs by investing in their labour force. This investment helps to utilise their full potential, ultimately benefiting the company.

Strategies to Improve Company’s Productivity

Despite the circumstances or situations, the main goal of an organisation is to incorporate strategies that result in increasing the overall productivity. The initiative of Minimum Wages was a step to motivate the workers to achieve their full potential, which affects their performance and the firm’s productivity (Bewley, 2015). In addition to incorporating NMW, there are other strategies that companies can follow to increase the output of their workers, such as work speed, quality and work volume (Portes, 2015). These include:

• Providing incentives and bonuses to their employees help them retain their efficient workers and motivates them to work towards the organisational goals. In addition, companies hire employees who are skilled and experienced and motivate them through incentives. They practice effective retaining policies in their HR department for continuous and effective performance.
• Companies undergo different training and education programs for their managers to enhance their leadership skills to effectively lead their team towards organisational goals.

There are many other strategies which will later be discussed in the study.