Payday: who’s afraid of rising wages?

Who’s afraid of rising wages?

18 September 2021

9:00 AM

18 September 2021

9:00 AM

During the Brexit referendum, Stuart Rose, the former boss of Marks & Spencer, and chair of the Remain campaign, claimed that if Britain left the EU, wages ‘will go up’. This was, he added, in a rare moment of candour, ‘not necessarily a good thing’.

But the idea that salaries might rise was exactly the reason that a great many people voted for Brexit. They were well aware that it suits the likes of Lord Rose to keep wages low, and they resented it.

It is now nine months since Brexit’s transitional arrangements came to an end, completing the UK’s break with Brussels and Stuart Rose’s prediction has come true — spectacularly so. Wages are rising at the fastest rate in decades. Last week, Costa coffee raised the pay of its staff by 5 per cent, which in the current climate may not be enough to keep many of them. Wincanton, the country’s largest road haulage firm, said it was raising the pay of some drivers by 30 per cent. Amazon is offering a £1,000 signing on bonus for anyone starting at one of its warehouses, as is Pets At Home, the UK’s largest pet store. Golden hellos are not just for the City anymore.

The desperation from employers is becoming obvious. Critical labour shortages have led to empty shelves and closed restaurants. The shortage of HGV drivers is the clearest example of the crisis, but there are millions of businesses that are struggling with just one or two jobs unfilled. Even a single vacancy can mean that other staff must work overtime, and owners must sometimes step in to fill gaps. On Tuesday, the Office for National Statistics reported that vacancies have risen above a million, the highest figure on record. Where once the high street was dominated by ‘For sale’ signs, now there are ‘Staff wanted’ notices in the windows.

Deliveries are being cancelled because of the shortage of people who are available to deliver, and supply chains are close to snapping point. There is already talk of a simple, quiet Christmas this year — not because of Covid-19, but because everything we usually buy is in short supply.

Is Brexit really the cause of these extraordinary changes to the labour market? Is it as simple as saying that the workers who once did the jobs we don’t fancy have all now gone home? It is certainly a factor. An estimated 1.2 million European workers have left the UK since the pandemic began, and it is a lot harder for them to get back in now that freedom of movement for EU citizens has ended. For two decades, Britain used labour from Europe as the human equivalent of a factory’s back-up generator. When necessary, cheap foreign workers could be hired at short notice and for very little money to drive a lorry, serve a coffee, or clean a hotel room. Since Brexit border checks have also tangled up supply chains, it is hardly surprising that some supermarket shelves are emptier than usual.

The furlough scheme has had a significant effect too. More than a million people were frozen in jobs that may no longer exist when furlough finally ends on 30 September. In a normal economy, workers would switch from declining to growing sectors, but that hasn’t been happening. Workers have been paid to stay at home doing nothing, which has left expanding industries without the help they need.

In truth, both Brexit and furlough are just jigsaw pieces in a bigger picture. Labour shortages are a global trend. In Florida, a McDonald’s is offering $50 to anyone who will turn up to an interview. At Amazon, where rapid growth has created an insatiable appetite for more people, the company offered to pick up the cost of college tuition fees for all its 750,000 frontline staff. In Germany, the head of the country’s federal employment agency argues the country needs an extra 400,000 workers to fill all of its vacancies. Shortages of staff have delayed the ending of lockdown restrictions for many companies. And after all, neither America nor Germany has left the EU…

Mobility has fallen around the world, mainly because of the pandemic. The Hungarians aren’t going to work in Germany in the same numbers they once were, and the number of Mexicans in the US has declined from a peak of 12.8 million to 11.4 million. Even in some parallel universe where we had never left the EU, Prime Minister Osborne would be grappling with the same problems. Labour shortages are here to stay.

We are starting to see a fundamental rebalancing. But is that so terrible? Over the last two decades, blue-collar wages stagnated while white-collar and professional salaries rose. That has finally begun to change. For the next decade, blue-collar pay will rise faster than white.

And it is worth noting that FTSE-100 CEO pay fell last year, with the average dropping by 17 per cent. The gap will finally start to narrow between what a head of the company gets and the average worker’s salary. Lord Rose, who has spent his life on the lucrative side of the divide, may think that is ‘not necessarily a good thing’, and so will many of his peers, but drivers, shelf stackers and receptionists would not agree.

Amid all the complaints about shortages of lorry drivers, keep in mind that the average trucker was only making £28,000 a year, and pay had barely increased in real terms over a decade. It is hardly a fortune for a tough job with long hours and not much in the way of perks. When farmers and food manufacturers complain that they can’t maintain production, it should be remembered that many of them were employing scores of Romanians who were living in dormitories on minimum wage. It wasn’t a perfect system, given that a wealthy country like Britain has the option of importing as much food as it wants.

There will be challenges to this economic rebalance, of course. It may create some inflation, although we shouldn’t take that for granted. While some companies can raise prices as wages increase, others — especially smaller companies — will find it too hard. Often shareholders will just have to take a hit instead: Ocado, for example, said this week that profits may be lower because of soaring labour costs. Inevitably there will be disruption while businesses adjust.

But that is how a free-market economy works. Shocks and price signals are how it reorganises. How long will the shocks last? It may take six months to a year, while supply chains reconfigure themselves, companies work out how to use labour more efficiently, and workers retrain for the jobs that are now in high demand. After that, everything should return to normal, except that wages and productivity will be higher.

Boris Johnson will be quietly celebrating. So long as the government resists demands from big business to ease visa and Covid restrictions and allow lots of cheap workers back into the country, ministers can sit back and enjoy the political dividends from the steepest rise in real wages since the immediate post-war boom. In fact, it’s not clear that the foreign workers would come back anymore, even if they could.

It can’t be long before the Prime Minister says ‘You’ve never had it so good’, and for many ordinary workers that will be true. The economy has reset in favour of labour, and that reset was overdue. It will be painful for many employers, no doubt. But overall, this may be the best thing to have happened to the economy — and the political system — for a long time.

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