There’s a lovely deli in my neighbourhood. It opened a couple of years ago with plans to grow into a restaurant, but never did. When I asked why, the owners – dedicated and knowledgeable foodies – told me they just couldn’t get good-enough staff on the pay they could afford.
To which the foodie in me answered “what a shame” and the economist “good!”
Because the economic transformation Britain needs to go through to claw its way out of stagnating growth requires a productivity revolution – above all in the service sector, where it is cheaper to hire a low-paid worker than to invest in plants, processes and know-how that will produce more output with fewer people.
Labour came to power on a mission to produce the highest growth in the G7 – but few people, even now, understand what it will take to do that. Put bluntly, it will mean fewer Deliveroo riders, fewer Uber drivers, fewer people working in gyms, delis and hotels – and more people making stuff in factories, labs and software houses.
So far, Labour has done three big things to end the bias towards low-paid, precarious work: it has brought in laws to strengthen employment rights; it has raised the minimum wage and also employer national insurance in a way that specifically makes it hard to hire people on the lowest wages.
The NI move provoked disgruntlement among some employers, who warned that they would rein in hiring as a result. To which the economist in me, once again, says: good. Because the unstated aim of Labour’s economic transformation programme is to move workers, capital and resources from low-value sectors of the economy to high-value ones.
However, the biggest obstacle to achieving this may not be the behaviour of employers, but of workers and consumers themselves.
We have collectively, as a society, become addicted to precarious and low-paid work, even as we complain about it.
We’ve become used to an economy where it’s easy to open a deli, but impossible to open a factory. We’ve normalised ordering food delivered by a rider surviving on the tips we leave. In our big cities, the metier of glamour has become entire streets filled with low-priced restaurants.
Many young workers have, in addition, become so used to precarity – the eight-month job, the zero-hours contract, the agencies skimming fees from their wages in return for access to work – that they believe they somehow benefit from it. It’s common to hear them claim they like the absence of commitment it brings.
“We pretend to work, they pretend to pay us” used to be a joke among workers in the Soviet Union – but could easily be used to describe the mood among Britain’s casualised and disincentivised workforce.
And all this comes at a social cost. It’s creating a massive cohort of workers who will be poverty stricken in later life, without savings, pensions or home ownership. It is a massive waste of human potential. And it’s suppressing productivity and growth.
So to achieve its growth mission, the government is going to have to go further and faster. Countries with low precarity and high wages achieve this not just through good employment laws and law enforcement, but by making it socially unacceptable to promote low-wage business models.
Take “umbrella companies”. These are companies that operate as middlemen between agency workers and the agencies that employ them, obscuring responsibility for meeting employment rights, tax and wage obligations. Around 700,000 workers are forced to use this arrangement to get temporary work – often in the service or construction sectors.
Go on the government website and you can find a whole guide to how to run one. Google “umbrella companies” and you’ll even find major agencies listing which ones they prefer to use.
But the entire sector is rife with abuses: underpayment of wages, non-payment of tax and opacity as to who is responsible for compliance with employment law. That’s why the Trades Union Congress wants to ban them. And the TUC is right.
At present Labour is giving itself “powers” to regulate umbrella companies under the Fair Work Agency it is setting up. Instead of a complicated and costly inspection regime, it would be easier just to pass a law forbidding agencies to use them. If you run an employment agency, what’s wrong with paying your workers directly, yourself?
Another easy win would be to boost employment inspection bodies and move from civil to criminal penalties for bosses who scam their workers. At present, even if they are fined, it is often limited to double the pathetic amount of pay they swiped from their employees. Stealing from your workers should become an instantly jailable offence, just as it is for workers who defraud their employers.
Zero-hours contracts, agency work, umbrella companies and bogus self-employment have created a lifestyle that disincentivises commitment, training, partnership, solidarity and of course union membership among the workforce.
According to a government-funded research project at UCL, around half of us will never work precariously. Another 25% of the workforce, however, is destined to move in and out of precarious work – for example, doing courier work in the evenings on top of a regular job because its wages do not pay the bills.
And for 8% of us, work gets more precarious over time, as more and more of the low-paid service sector abandons traditional contracts and moves to the agency system.
Dispelling the belief that this is somehow normal or inevitable is one of the biggest contributions we could make to our own revival as a country.
