Johnson’s high-wage hype: a fake plan for a real crisis

It is really hard to believe they are serious. A predictable shortage of labour because of Brexit, dismissed in the referendum campaign as ‘project fear’, has suddenly become part of the plan all along. Loyal Tories have apparently swallowed Johnson’s claim that crises in the supply chain show we are moving to a high-skill, high-wage economy.

As with all good deceit, there is a sliver of plausibility. Some lorry drivers will get more pay as supermarkets and oil companies increase wages and offer recruitment bonuses. The consequence, however, is that the driver shortages will appear elsewhere, in sectors lacking the power to pass on increased costs to customers. Somerset’s bin collection services are currently disrupted because the contractor, Suez, cannot charge more to cash-strapped councils and is losing drivers to supermarkets. They are not alone.

No business funded by local authorities has the option of raising wages and putting up prices for its services. Social care, which has suffered even more than transport from the loss of EU staff, can still only offer poverty pay and poor conditions. Equally, sectors that face strong competition from low-cost producers elsewhere, cannot add to their problems with an increased wage bill. That’s why we are not seeing ‘golden hellos’ for fruit pickers and cauli-cutters, or, for that matter, abattoir workers needed to process pork.

It makes a mockery of the so-called ‘levelling-up’ agenda if those with monopoly power give inflation-busting pay rises while other workers see real incomes decline: but let’s deal with one Johnson fairy tale at a time. A high-skill, high-wage economy is, after all, a good policy objective. What would a government that was serious about pursuing it do?

Restrictive trades union legislation, weakening the power of workers in relation to their employers, has been a major cause of wage stagnation in the UK and USA. One way of limiting the attraction of business models that rely on cheap labour rather than invest in productivity would be to restore some of the bargaining power of employees, as Joe Biden proposes. However, Conservatives, even one as blatantly expedient as Johnson, are unlikely to strengthen the rights and powers of trades unions, despite our regulations being among the most restrictive in Europe.

Pressure on employers who rely on exploiting a marginalised workforce could be increased were the government to invest more in enforcing the minimum wage and fair working conditions. Research by the Resolution Foundation has found that “Only 14 [firms] have been criminally prosecuted for minimum wage underpayment in the last 20 years, incurring an average fine of less than £3,000 each”. After a decade of inactivity, there is no indication that the government is now intending to be tougher on rogue employers.

Moving towards a high-skill, high-wage economy requires that trade deals stop firms that offer good jobs from being undermined by unfair competition from countries with lower standards. Unfortunately, the government approach to trade seems to move the UK in the opposite direction, refusing to align with robust European regulations and making no commitment to require a level playing field on workers’ rights.

A government that was serious about promoting better skills and higher wages might make more use of ‘licences to practice’. For example, it is not illegal for someone without qualifications to call themselves a plumber, which undermines the incentive of others to engage in rigorous training. The recent Skills for Jobs white paper does not mention the concept.

One could go on. A government seriously committed to a high-wage economy would outlaw ‘fire and re-hire’. A government serious about a high-skill economy would have a higher-education policy focused on supporting innovation rather than suppressing imaginary threats to free speech. A government anxious to create good jobs might worry about the Brexit-induced sell-off of large parts of UK industry to foreign buyers.

If the government is not doing any of the things that a competent labour economist might suggest to improve pay, what is it doing? It is, it says, restricting the immigration of unskilled workers. This is certainly administering a shock to some low-wage sectors, though not much more than could have been achieved by rigorous enforcement of standards and a hike in the minimum wage. Crucially, however, it does nothing to address the chronic problem of low productivity.

As Torsten Bell of the Resolution Foundation says: “What lower migration won’t do is address the root causes of our disastrous wage stagnation of the past decade. Those are: 1) inflation spikes caused by hits to our national economic position (financial crisis + Brexit); and 2) truly awful productivity growth (ie none of it).” Furthermore, the impact of migration on wage levels is far less significant than imagined.

Overall, it is hard to disagree with the assessment of Laurie Macfarlane writing for Open Democracy – that, rather than presenting a serious plan, the government is simply “reverse engineering a new economic ideology to justify a crisis of its own making”. It may go down well in the heat of the moment at party conference; but in the cold light of day it will surely be seen for the cynical confection that it is.