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16 July 2021updated 04 Sep 2021 2:26pm

There’s a simple answer to labour shortages: pay workers more

After over a decade of stagnant living standards, employers appear to have forgotten the basic laws of supply and demand.

By Jonn Elledge

There’s a single-issue political party active mainly in New York City, which I have always admired for the clarity of its message. The Rent Is Too Damn High Party campaigns under the slogan “The rent is too damn high”. Its main policy is that – well, I don’t want to spoil the surprise, I’ll leave you to find out for yourself.

Such a message would, I suspect, play well in many cities a long way from New York state, including the one where I’m sitting right now. But I’d like to propose another slogan that would also, I suspect, have legs, in New York and London and pretty much anywhere else you can think of: the wages are too damn low. 

This has always been true of course – one of the few things that unites zero-hours Amazon warehouse staff and investment bankers is their belief that they are worth a lot more than they’re getting. But what’s different about today is the labour market agrees – and employers haven’t noticed. There’s been a string of stories of late in which bosses or their umbrella groups bemoan their inability to find staff, without, somehow, noticing the obvious but mildly financial disadvantageous solution that’s right there in front of them.

[See also: The awkward truth about why social mobility is lower today]

Some examples. Earlier this week, CNN managed to achieve what many might have thought impossible, by getting a video about the state of the US construction industry to go viral. The reason for its popularity was the highly mockable comments from the owner of a company that repairs and maintains solar panels, complaining about his complete inability to get the staff. “I was offering $18 to $22 an hour and got no applications,” he tells the reporter. “I’ve increased it to 25 and they’re starting to trickle in.” 

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The voiceover implies that it is weird, somehow, that there has not been a flood of applications when the construction industry already pays substantially more than hospitality. I am not convinced that, in the booming US jobs market, a shortage of people willing to do highly technical work, on roofs, in the heat of a New York summer, is actually that weird at all. Far weirder is that someone who owns a business would be so poorly versed in the laws of supply and demand, and would go on TV to prove it. 

(It could be much, much worse. Another of this week’s viral posts was this sign from a Texan restaurant, complaining that “due to government handouts no one wants to work anymore”. Low-wage campaigners dug out an ad for a job there. It pays $2.13 (£1.54) an hour.)

[See also: Rishi Sunak’s plan to inflate house prices offers nothing for generation rent]

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The UK economy has not of late shown quite the rude health of the US one, of course – but there are signs that here, too, in some sectors and in some cities, employers are finding it hard to hire for the rock-bottom wages they’ve grown used to. A recent report in the Economist tells of a pub in Peterborough which has stopped serving lunch because it can’t find a chef. “Asked if he might have to raise wages in order to attract a chef,” the poor, struggling publican pauses a moment, before admitting that “it might come to that”. As with our friend on that roof in New York: the possibility he might have to do this did not seem to have previously occurred to him.

What I find shocking about these stories is not that employees might want more money, nor that employers might be reluctant to give it to them. It’s that the latter have seemed increasingly baffled by this turn of events. They seem to have forgotten something that once would have been obvious to every employer going: if you can’t fill vacancies, you need to pay more. The same people who banged on about supply and demand when it came to soaring executive pay or the profusion of zero-hours contracts seem utterly baffled to find the same forces working for labour, not capital, for once. 

Wage growth slowed even before the 2008 financial crisis
Median and mean real equivalised household disposable income in the UK

 

Perhaps this isn’t surprising. Since the early years of this century, even before the crash, wage growth has been markedly slower than it was in the decades before. Just as many workers have never experienced a period where wages climbed steadily, a growing share of bosses have never known a time when they regularly had to improve wages to get the staff they need. Of course they don’t remember what that’s like. 

And, to be fair, they’re not the only ones who’ve forgotten that rising wages are a good thing. For most of the last 200 years, wages in this country rose steadily, taking living standards with them. This was the big selling point for capitalism: it may not always be fair, the argument went, but accepting that unfairness meant we could all have nicer things.

Well: in recent years, that link has broken. Living costs have risen, while wages have been stagnant. And the Conservative Party, which was meant to be banging the drum for the benefits of market forces, has not said a word. More than that: its outriders are frequently to be heard fretting that higher wages will mean higher inflation, as if paying people more was somehow a bad thing. 

It isn’t: it’s the whole point of the exercise. And sometimes, markets red in tooth and claw will deliver higher cash to workers, rather than merely to their bosses. Remember this the next time you hear some employer or other lamenting their inability to find staff: the phrase "labour is in short supply" has a silent “for what I am willing to pay”.

[See also: Britons who crave permanent lockdown are the worst kind of killjoys]