In the 1990s and 00’s the UK Labour party enjoyed an extended period of power. This was accompanied by a prolonged if moderate period of economic growth. However the legacy of their economic and employment policies in particular, left the UK vulnerable with a large budget deficit post 2008 credit crash.
Tony Blair and his Chancellor Gordon Brown, chose flexibility in the labout market as the key for economic growth and employment opportunities. More felxibility would get more people into work. However more flexibility means variable working hours and tenability. When unemployment benefits are a more stable form of income than pay, then a significant number of unskilled ( or wrongly skilled) workers go unemployed and search jobs which pay better and are predictable income. Hence, Chancellor Brown introduced flexibility in payments of benefits vis a vis working hours, and tax credits for families on lower income. This was called ‘making work pay’ . It has been a disaster for the UK economy outside the south east and some other cities.
Employment and economic policy in Westminster, then as now, is lauded as creating high levels of employment. In fact though the issue is not unemployment per se, it is underemployment.
This manifests itself in two ways. First and foremost, people are underemployed in terms of working hours per week, month or year. They either have part time work, temporary work or worst of both worlds, completely unpredicatble working hours. This is now a major constituent of the regional economies of England. Secondly, people are underemployed by being in very low skilled, low productivity jobs with no opportunity for training and up-skilling.
These jobs are in areas of agriculture, logistics, retail, cleaning and personal services. In effect large sectors of the economy in less economically advantaged regions and deprived city areas, are being run on a crypto-keynsian basis. Companies which otherwise would not be profitable because labour would otherwise choose not to work there, gain a supply of cheap labour which is subsidised with benefits or tax credits.
The tax credit issue is particularly difficult, because it means even average families pay less in tax than they get out from the welfare state. It is the ulitmate social democratic trap, where single people and high earners pay an increasing sum of even average worker’s costs in delivery of health, education, pensions and other benefits.
The two issues of underemployment are of course inter-related. There is a correalation between low productivity and precarious, low skilled work. There is no incentive for employers to invest in productivity, because they can have a supply of super flexible, cheap labour. They can avoid capital costs in automation and the training required to operate a more productive site. Competiing on cost alone towards customers, there is then little innovation in integration to the supply chain, the services are commodotised at a point price.
Typical examples are working in mail order or retail warehouses, delivery driving and crop picking. However the trend for tenuous work extends into even proffessional services such as accounting.
The trouble with much of this is that in fact these jobs need to be done, and would be done within much more stringent economics of higher worker empowerment by either market shortage of labour or stronger employment laws. These jobs in care, agriculture , and warehousing amongst other things could well suit being part time, but there is no incentive to employ and train people to higher standards of delivery and hence productivity or quality. The work needs to be done, but the lowest common denominator is chosen. The employer has no obligation to diversify or innovate in order to utilise staff on more permament contracts in other areas of the busiess, or to use fewer staff at higher hourly wages who are more productive. In effect regions of England have become more like Portugal, Southern Italy or even third world countries when you compare “GDP”, or adjust wages for living costs.
In response to higher minimum wage levels, employers are likely to cut working hours or remove hourly based pay making working days longer, esepcially when as intended, the 48 hour maximum working week is removed as is the intention of many Pro Brexiters in the ruling Tory party.
Why the Scandinavian Model is Better?
The Scandinavian model would not work in the UK if introduced overnight. It is successful because it has been a long term relationship between labour, industry and the government as mediator, usually on the left of centre in respect of labout law.
The model is that workers will have protection in employment law, affording them working contracts , wages based on skill tariffs, permanency, predictable working hours, right to full time work when it is available. Such “inflexibilities” are anathema to UK conservative economists. However, Scandinavia, Germany and the low countries practice these policies to a greater or lesser extent and have lower unemployment and in partictular more net tax payers.
This is the key thing, work pays the bills and for a life outside that. Many of these jobs need to be done in society anyway, and higher costs can be to some extent passed onto consumers who have themselves, higher income. Tax collected helps pay for a well paid, highly trained public sector and invesmtent in innovation, cand automation of public seriviceses,.
Employers of course are presented with a dilemma that labour will become more expensive over time and the domestic market may not tolerate for those tasks provided mostly locally, while international competitiveness is threatened. Therefore they must invest in innovation and improvements in productivity through investing in automation and up-skilling workers.
Now we come to the Luddite proposal, which is now rather ironically adopted by neo conservatives who do not desire such “restrictive” labour laws. They claim that higher wages, and then also the Scandinavian model, leads to greater unemployment. Then they quote the suicide ratein Swedenn and the cost of a ‘pint’in Norway. However unemployment is low in these countries. Chronic Illness and sick leave is quite high, but that is in large part due to the climate which is detrimental to arthritis, depression and lung diseases.
As in the days of the Luddites, the introduction of automationactually creates new jobs, by facilliating a better return on investment and more companies taking advantage of skills in the market. It means those in that industry or service command higher pay and pay more tax than they get back from the state when they are childless and healthy at least. They spend in the economy and their tax cirulates in the ecinomy, and they compete internationally or provide local delivery in the domestic economy at an affordable price.
Essentially Britain had this choice in the 1950s, but chose to see the issue as a labour shortage rather than a skill and investment challenge. The then conservative government chose to open up to wide scale immigration from the common wealth. For three decades they were a supply of cheap , plentiful labour at often a lower cost than their native compatriots.
Some argue that this is why UK has voted to leave freedom of movement of labour, both ways, and enter a more restrictive immigration policy, which favours financial services industries, technology industries and R&D. Many ordinary workers expect a market mechanism will afford them better working conditions. However the removal of unskilled or semiskilled foriegn labour is quite abrupt, especially when it regards seasonal working, and the shock of the adjustment will lead to bankruptcies tather than better working conditions. Employers are locked into cut throat supply chains and many will not adapt to investing in automation or higher productivity through training of workers. Less workers means also less tax returns and less money in local economies.
UK employers at this end of the market will be tempted to break the law by employing at less than minimum wage per hour, or take advantage of higher unemployment though ‘work fair ‘ schemes whereby people have to work to get their benefits and employers get a free ride based on the notion of work experience and training.
Strong employment laws are vital to break the poverty cycle which Gordon Brown tried to do with ‘making work pay’. Too many jobs which need to be done in the UK, are now subsidised indirectly via benefits and tax credits, without which employees could not make a living wage. Indeed the changes in benefits assessments undertaken mean that work is no longer paying, and debt is rising amongst that sector of the employment market as small, transient but significant. People are not making ends meet.
There is also a knock on economic effect, Skilled workers cannot retract their labour to work in a less demanding menial job, so in the laisez faire system with union and workers rights supression, their wages have not being rising despite productivity going often up in many industries. In the UK, as in many countries, the lion’s share of national tax revenue comes from income tax and employer contribution taxes. So low wages and tax credits mean less tax is returned from the lower half of incomes.