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Raising the minimum wage: economic and fiscal impacts

The Government of Jersey is reviewing the impact of raising the minimum wage to £7.88 per hour, based on 45% of mean weekly earnings, or to £8.40 per hour, based on 60% of median earnings. Oxera has been asked to estimate the potential consequent economic and fiscal impacts.

Raising the minimum wage would have the direct impact of increasing wages for a significant number of low-paid employees, which could in turn reduce poverty, improve welfare, and increase spending in the economy. At the same time, raising the minimum wage could impose higher costs on businesses, which could ultimately lead to negative impacts on employment, and higher inflation, as businesses pass these costs on in the form of higher prices.

Using official statistics, surveys, and detailed income data from Jersey, we have estimated the likely impacts on the Jersey economy. Overall, within the framework we have used, we have assumed an increase in incomes for nearly one-quarter of employees at the bottom of the income distribution. The impact on government revenues would be slightly positive—there would be higher government spending, which is more than offset by higher revenues.

There would be an increase in firms’ costs, following which we would expect a number of job losses, reduced hours, increased prices for consumers, and lower firm profits (i.e. a reduction in shareholder value). The job losses would be concentrated in the hospitality, agriculture, and retail sectors.

The combination of these direct and indirect effects would be likely to result in lower economic activity overall, with a level-shift reduction in gross value added (GVA).

This report sets out, and quantifies, the likely impacts of an increase in the minimum wage in Jersey. There is significant uncertainty in estimating the impact of policy changes. We have shown the likely outcomes from the proposed changes, predicated on a series of assumptions. The report has been shared with Ministers and has been used to inform the policy debate.