Are wage increases inevitable in the face of labour shortages?

London, UK: Employers are lobbying hard for an extension or easing of the visa requirements for EU nationals wishing to come to the UK.

The Confederation of Business and Industry and the Institute of Directors have added their voices to the many, including the Road Haulage Association and Logistics UK, dismissing government claims that investing in domestic workers will halt the worker shortage.

All these organisations represent employers for which labour shortages are obvious bad news, especially as they are likely to give rise to wage increases.

Waitrose is reported to pay £53,780 a year for an HGV driver, trumping the salaries of some of its head office staff. Tesco, Gist and others offer recruitment incentives and bonus payments for new drivers.

The average salary for a truck driver is £30,200 gross per year, 2% higher than the UK’s national average salary. Starting salaries average around £24,200 and the highest, often owner drivers, exceed £60,000. But taking inflation into account, truck drivers, like most British employees, have not seen a boom in wage over the past 10 years.

There has been criticism of the over-reliance on EU unskilled, cheap labour along with persistent underinvestment in the British labour market. Clearly there is something wrong about an economy where more than half the population living below the official poverty line are from working households and where a large part of the welfare bill is spent supplementing the incomes of those who do not earn enough to get by.

In the current crisis employers, finding themselves short of staff and unable to call on labour from overseas, can invest more in labour-saving equipment; more in training to raise skill levels; or pay more in order to attract staff. It is not immediately obvious why any of these should be either impossible or undesirable. It’s why Gist and Tesco are offering a sign-on bonus for new drivers.

And at the moment it is about all employers can do. Increasing training or buying new kit all take time to produce results while the government has made it abundantly clear it will not relax migration rules.

Nor does the easing of immigration restrictions necessarily mean more migrants. Samuel Tombs, of the economics consultancy Pantheon Macro, says EU nationals who returned home during the pandemic last year who could come back to Britain if they chose to do so. “Legally, most of these people can return if they wish. Indeed, applications for pre-settled and settled status have exceeded the official number of EU nationals in Britain at the end of 2019,” he says. “Nonetheless, current labour shortages in sectors reliant on migrant labour indicate that enthusiasm to return is low.”

The government is seeking to entrench its support among low-paid, traditional Labour supporters, who backed Brexit and voted for the Conservatives at the 2019 election. Ministers sense that this section of the workforce is quite happy with a state of affairs where, for the first time in years, there is the possibility of screwing a decent wage rise out of their employer. Relaxing migration would fly in the face of everything Brexiteers claimed.

Although academic studies show that EU migration has a beneficial effect on wages in the UK, this tends to only benefit those at the top end of the income scale. At the bottom end of the market wages are held down when migrant workers compete with domestic workers. The competition tends to be greatest in low-paid jobs, and truck driving.

The Brexit divide is seen clearly in these terms: those with s well-paid job and not at risk of being replaced or undercut by a worker from overseas, were likely to vote remain, unlike those caught in Britain’s casualised workforce, needing two or more part-time jobs to get by. For this group voting to leave meant tougher controls on migration and a tighter labour market, which in turn would push up wages.

Government electoral support, particularly in former Labour seats, is dependent on maintaining a strong stance on Brexit. Labour shortages are not evidence that Brexit is flawed, it shows it is doing what it was supposed to do.

No surprise then that the Institute of Directors has joined the chorus of lobby groups dismissing government claims that investing in domestic workers will halt the worker shortage.

The Institute of Directors called for new, flexible visas that would allow foreign workers to step in to fill crucial roles, particularly as truck drivers, after an exodus of workers due to Covid and Brexit.

“Whilst UK business should certainly be investing in the skills and capabilities of the domestic workforce, that is unlikely to be a solution to short-term labour market shortages,” said Roger Barker, director of policy, at the institute.

“The government needs to adopt a more pragmatic approach, including a more flexible visa regime, which alleviates some of the current pressures on business.”

A lack of lorry drivers, due in part to the Covid crisis and Brexit, is putting supply chains under pressure while labour shortages in sectors such as meat processing are compounding the problems facing business.

Last week, the Confederation of British Industry reported that stock levels in August had fallen to their lowest level since retail industry trends were first tracked nearly four decades ago.

The public evidence is McDonald’s running out of milkshakes and Nando’s forced to close 50 outlets because of a chicken shortage.

Industry groups, including Logistics UK and the British Retail Consortium, have also called on the government to provide temporary UK visas to EU truck drivers to help address the issue.

In a letter to business groups, Kwarteng urged employers to help the “many UK-based workers [who] now face an uncertain future and need to find new employment opportunities”.


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