A body which represents the Isle of Man’s construction industry has raised concerns on its future if the proposed new minimum wage is implemented.
Construction Isle of Man represents the island’s construction industry and associated sectors.
The construction sector employs well in excess of 4,000 people, making it the third largest employment sector behind finance and health on the island.
Industry Future
Construction Isle of Man has sent a letter to members of Tynwald, a version has been shared with Manx.News.
Below are some of the key areas of concern:
- Inflationary pressures and wage spiral: A sharp rise in the minimum wage tends to lift wages above that level as pay differentials are maintained, which in turn raises costs and risks triggering further rounds of wage inflation.
- Wage structure impacts: Many firms employ a blend of skilled, semi-skilled, and unskilled workers. A 9.9% rise in the minimum wage will push up pay not just at the lower end, but across the pay spectrum, significantly increasing total labour costs—especially for labour-intensive activities.
- Fixed-price contracts: Construction contracts, particularly on Government projects, are often long-term and fixed-price, with little or no provision for inflationary adjustment. A sharp rise in wage costs could therefore render some contracts uneconomic once these additional costs materialise.
- Impact on smaller contractors: Many small and medium-sized contractors operate on tight margins and would struggle to absorb such a large, immediate increase in costs. Possible consequences include:
- Cutting non-labour costs, potentially affecting safety or quality;
- Passing higher costs on to clients, further fuelling inflation; or
- Delays to projects as firms seek to renegotiate prices or secure higher contract values.
- Reduced opportunities for entry-level recruitment, apprentices, and trainees: A substantial rise in the minimum wage may make it harder to justify hiring less experienced workers, as their cost may exceed their initial productivity. This could lead to fewer entry-level opportunities within the sector.
- Broader inflationary effect: As costs rise across the supply chain, contractors and suppliers will raise prices in turn. This can contribute to an economy-wide increase in prices, quickly eroding the intended benefit of the minimum wage rise.
- Effect on Existing Pay Structures: Wage Compression: Raising the minimum wage to £13.46 (a 9.9% increase) will cause wage compression, where higher-paid employees expect similar raises to keep pay differentials fair. This will increase labour costs not only for lower-wage workers but across the entire industry.
Secure Industry Future
The letter adds: “The industry believes there are alternatives which are potentially a more effective way to support lower-income workers.
“One would be to raise the income tax threshold, allowing individuals to retain more of their earnings without increasing employers’ costs or fuelling inflationary pressures.
“In conjunction with the proposed increase to the income tax threshold, a more sustainable approach—while maintaining Tynwald’s commitment to raise the minimum wage to 66% of Manx median earnings—could be to adopt a structure similar to that used in the UK.
“Although not without its limitations, the UK model incorporates several age-related pay tiers, providing greater flexibility in wage structures, helping to mitigate the effects of wage compression, and supporting the relative cost-effectiveness and value of younger workers and apprentices.
Construction Isle of Man urges Tynwald Members to consider these implications carefully when considering the proposed increase, and to ensure that any measures that set out to improve living standards do not inadvertently undermine job security, training opportunities, and the financial sustainability of industry.
