There are two types of employers in Britain right now:
- The guys who believe in increasing staff wages in order to retain the best talent (and simply because grinding the faces of the poor is, you know, wrong).
- People like Wetherspoon’s chairman Tim Martin, who complain about having to pay workers more.
Today we found out that the Martins of the world are losing this argument. Exhibit A: Greggs, Britain’s finest source of sausage rolls. Greggs reported Q3 earnings today, and delivered a healthy sales increase despite upward pressure on wages.
The company also repeated its promise to pay more than the National Minimum Wage (£6.70, increasing to £7.20 in 2016). The 5% rise in revenues was driven by sales of Greggs’ “Aberdeen Angus Spicy Meatball Melt Baguette.” Greggs CEO Roger Whiteside also warned about future “increases to wage rates will drive greater inflationary pressure.”
But then Whiteside did something remarkable. He reiterated the company’s promise to pay workers more: “Our standard rate for hourly-paid shop staff is already above the National Minimum Wage and we will maintain a competitive position in the market going forward.”
The message there is, yes you can run a large business with competitive prices, and grow sales, and pay workers more than the minimum wage.
Contrast that with Martin’s statements from Wetherspoon’s earnings report in September. The government’s new minimum wage laws came on top of two modest pay increases Wetherspoon had previously given its pub staff. The company said it didn’t like that: “By pushing up the cost of wages by a large factor, the government is inevitably putting financial pressure on pubs, many of which have already closed.”
Whitbread CEO Andy Harrison made similarly gloomy noises last month too.
Traditionally, when governments impose or increase the minimum wage, employers make the argument that the increased cost will drive them out of business or prevent them from hiring more people. Economists, particularly conservative ones, argue that wages sit on a demand curve just like everything else in the free market, and that if wages increase a bit then the demand for workers ought to fall off a bit. Better wages = worse for workers, they say.
But employers have more levers to pull than simply altering wage levels. It is likely that Greggs might consider increasing the price of the Aberdeen Angus Spicy Meatball Melt Baguette to compensate, for instance.
More importantly, the Greggs v Wetherspoon’s debate shows that if you’re running your business properly, then paying above minimum wage need not hold you back.
Exhibit B ought to be Pret A Manger, the sandwich chain that is Gregg’s mortal enemy. Pret sales were up 17% in the most recent period and the chain responded by awarding its staff a spot cash bonus and a 1.5% pay rise going forward.
So now you know where to eat if you care about wages. Not Wetherspoon’s.
But what about inflation? Rising wages do drive inflation. And if you’re an old person, you’ll know only one thing about inflation: It happened in the 70s, it was bad, and you don’t want it again.
But Britain has been stuck in a non-inflationary doldrum for years now, and has frequently flirted with deflation. We actually need a bit of inflation to juice the economy and keep it rolling forward. Inflation is easily controlled. Bank of England governor Mark Carney can stamp it out with a single press release. Not so deflation, which can tank an economy on a semi-permanent basis, like Japan between the mid-1990s and 2006.
So go and eat a sausage roll at Greggs today (or an egg sandwich at Pret). Not only will you be sending Wetherspoon’s and Whitbread-owned Costa Coffee a message about what you think about pay, but you’ll be helping the macro-economic picture, too.