“The recent slowdown of labour supply growth may be followed by a sustained productivity recovery”.
Source: The Bank of England
You have probably heard that the UK’s productivity is as much as 30% behind it’s major competitors. The full causes of this problem are not fully understood but analysts commonly agree that a large part of the UK’s failngs lie in the following areas:
- Technological progress.
- Worker skill level.
- Worker health.
- Worker morale.
- Labour cost.
- Legal structure governing hiring and firing
The UK fails on many of these levels and one of the reasons is the glut of cheap labour created by policies that do not match incoming labour to needs and resources. With labour cheap and plentiful the UK has gained growth through ‘bums on seats’, just doing the same but with more people. This has enabled employers to save on the costs of automation, training, innovation, job quality and wages.
1. Technological progress has been undermined by low levels of automation. With labour cheap there is no need to risk capital on plant and machinery. The number of industrial robots per 10,000 factory workers in the UK (2016 figures) is less than a quarter of those used in Germany and Japan, less than a third of those used in the US and Italy and half of those used in Canada and France.
2. Worker skill level has been undermined by a long term decline in training. When employers can get skilled staff from overseas there is little incentive to spend on training. In 2010 UK employers spent less on training than other major EU economies and less than the EU average, and the gap has widened since 2005. In 2010, the UK spent 35 euros per hour of training against an EU average of 54 euros.
Training improves efficiency. Highly trained staff can find solutions to problems that untrained staff cannot. Lack of training is also a double whammy, as when managers lack training, inefficiencies are compounded.
3. Worker health is being undermined by long hours and deteriorating working conditions. UK workers work the longest hours on average in Europe. A survey by the Chartered Institute of Personnel and Development found that 7% of employers used overseas staff as they would tolerate lower pay and conditions than their UK counterparts, enabling employers to degrade employment packages.
4. Worker morale has been undermined by poor quality employment. One of the puzzles of our economy is that, despite having stagnant growth since 2008, we absorbed around 3,000,000 new residents from overseas into the workforce and our unemployment rate continues to fall. Studies have found that instead of the traditional problem of unemployment that we would have seen in these conditions, unemployment has now been replaced by under-employment. Full time work has been replaced by temporary contracts and part time work. Consequently we have around 1 million in zero hour contracts and 3 million more people than average working in part time work.
We have also seen the creation of sub-standard employment, with millions now earning subsistence wages in the Gig Economy and working for a pittance in sweat shops such as Sports Direct, or driving vans for online retailers on less than the minimum wage. This has resulted in a real value fall in pay, conditions and job security. Those that complain are told they will be replaced, something that can be easily done when there is a deep pool of available labour.
5. Labour cost savings have resulted in compromised output. By increasing levels of low quality employment employers also increase the total number of hours worked. Productivity is defined as total output divided by total input. If the input in hours is increasing faster than the total output then productivity declines.
6. The legal structure governing hiring and firing has lead to lower employee commitment. The introduction of zero hour contracts, the exploitation in the gig economy, the increasing level of part-time and temporary work and other forms of reducing commitment to employees are all known to lower motivation and morale.
All these failings are, of course, directly the responsibility of UK employers. But without the ready supply of cheap labour that comes in from overseas, employers would have to reverse all the bad practices listed above. If we had a migration policy that controlled incoming numbers, labour would not not be such a disposable commodity. Many of the workers who suffer the exploitation listed here are often the new workers from overseas. However, we cannot have a sensible migration policy whilst we are still shackled to the failing ideology of Freedom of Movement.
With Brexit uncertainty reducing the supply of labour from overseas we are already seeing some of these bad practices reversing.
Central bank officials Will Holman and Tim Pike wrote in July on a Bank of England economic research blog “Firms are increasingly investing in automation, substituting capital for labour, as workers become more scarce and costly,”
Salaries in sectors heavily reliant on labour from overseas have seen sharp rises. Construction industry wages have risen 11% and in the hospitality industry they have risen 38% over the last two years.
Training is seeing a similar turnaround. One house builder has started training students whilst still at college. The construction industry has created a £20 million fund for on site regional training. The NHS have increased student nurse positions by 15,000.
A survey of how employers will deal with skills shortages after Brexit show that:
- 30% more employers are considering upskilling existing employees.
- 27% more are considering sponsoring professional qualifications.
- 41% more are considering recruiting candidates with potential but without experience.
- 47% more are considering developing apprenticeship schemes.
So what does this loss of productivity cost us? UK GDP is £1.98169 trillion. If the oversupply of labour has reduced our productivity by 5% then that is a loss of more than £99 billion each year, a staggering £1.9 billion every week!
This is not the only cost of our EU membership.
Due to the underemployment outlined above we have a high bill for tax credits and other benefits.
Greenpeace and WWF cite the Common Agricultural Policy as the biggest single cause of habitat loss.
The Woodland Trust who are fighting more than 20 introduced tree pests and diseases and see at least 11 more diseases nearing our borders, have condemned the EU’s bio security measures as being largely ineffective.
The Common Fisheries Policy through it’s discard system has for decades been destroying our fish stocks.
How many more billions do we need to restore all that environmental damage?
We could also add the cost of our housing crisis which has many causes but is only made worse by more than 280,000 new people from overseas needing housing each year.
Should we also add in overstretched services such as the NHS, schools and policing?
And lets not forget our EU membership fees. The UK is a net contributor to the EU and after rebates, grants and inward investment are returned our net contributions is £7.5 billion a year.
This blog is not against migration. It is criticising the idea of uncontrolled migration and is not “blaming the migrants”. The vast majority of our residents from overseas are decent, hard-working, law abiding citizens and deserve the same respect as anyone else in our society.
Any frustration or anger over our ill-considered migration policies must be directed at our political system and not at our residents from overseas. We hope they prosper in a post-Brexit Britain.