Unemployability and the National Minimum Wage

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I recently a met someone who to all intents and purposes is unemployable.  That is to say they are unable to sell their Labour to any employer in the current Labour Market and I can’t see that changing any time soon.

I met him because we recently recruited a new Production Manager. Our current Production Manager is moving with his wife to Canada as she couldn’t get work as an Academic in the UK.   

We had a lot of really good applicants and could have recruited 2 or 3 times over.  None of the applicants were unemployed, however about a third of them weren’t working. They tended to be older applicants coming back to the workforce after a period on the sick, or who otherwise weren’t economically active.  The unemployable chap was in this category.

We have a rule that we pay at least the National Living Wage, and quite a bit more for jobs like Production Manager.  Confusingly George Osborne rebranded the National Minimum Wage as the National Living Wage, which isn’t very helpful, but it did give Ian Duncan Smith the chance to fist pump in the House of Commons.  I am legally prevented from telling you my opinions of IDS, which I am sure is a great comfort to him.

Paying above the NMW is a good thing on principle but it is good business sense too.  In the North East setting a wage rate even slightly above NMW makes us an attractive employer.  That and the free Gin.   

But it is also because of our experiences of low wages.  We were offered, and briefly tried recruiting a Business Management and Marketing Apprentice through a government sponsored scheme.  For employees like this the NMW doesn’t apply, and most employers pay the legal minimum for Apprentices -£2.60ph.   There was little attempt to hide the fact for the most employers this was just very cheap labour ready for exploitation. 

If you were wondering why there are so few Saturday jobs these days this is the reason. Why would shops employ middle class kids part time for £5 an hour when they can get full time workers cheaper?

We were shocked at the low level of wage, and decided that we would set a wage rate higher than that.  The problem was how much?

I had a contact at the Labour Market Research Dept at the Trades Unions Congress.  For the sake of discretion let’s called him Brother Gavin.  The TUC has one of the few research departments left that looks at wage rates and differentials.  In the past research like this was a big bit of Industrial Relations (for younger readers this is what Human Resources used to be called).

Brother Gavin patiently explained to me that the going wage for someone with no particular skills and no particular experience was £0ph.   The same was true for people with only the lowest levels of manual skills.  There is no wage rate set by the TUC for jobs like that because in a world of the NMW there is no demand for that Labour at £7.50ph. 

The individual who applied to work for us was in this category.  He was a nice chap, enthusiastic and trying hard to get back into the workforce after a period out of the Labour Market, but his skills and experience were very narrow and very out of date.  At £7.50 an hour I don’t know of any employers who would recruit him where he would want to work.  The Care sector always needs new recruits, but he wants a more traditional male job, not a job that he perceives as woman’s work.   

We ended up agreeing a wage structure for our apprentice with the TUC, which paid quite a bit more than £2.60ph, but in the end the Apprentice we had tried to recruit went somewhere else, and we gave up.  We decided not to hire lower than the NLW ever again.

The introduction of the National Minimum Wage is the biggest change in the UK Labour Market in the last few decades and one of the most transformative Left Wing policies of all time.  The increase in wages for people at the lower end of the Labour Market has transformed people’s lives, and as the NLW becomes more prevalent it will transform a lot more.

This massive impact has been almost completely unseen by a huge chunk of the population, who don’t work at that end of the Labour Market, and don’t recruit from there either. This includes a huge chunk of Labour voters. Even cleaners come via agencies who handle the wage negotiations.   

One of the biggest criticisms of the NMW is that it has distorted the labour market – which rather misses the point. It was meant to distort the Labour Market fundamentally.  Lots of people have benefited from as a result.

There are however an increasing number of people in the Labour Market who can’t sell their Labour at £7.50 an hour.   If I can pay even a small amount more and get a wide choice of potential employees who bring a much wider skill set why would I pay the minimum?  The NMW hasn’t just increased wages, it has increased employers expectations of what employees will do.  There are still people out there recruiting people with very narrow skills, however in the North East the supply of basic manual Labour outstrips supply hugely.

While all of this is going on unemployment apparently continues to fall:

http://economia.icaew.com/en/news/july-2017/uk-unemployment-falls-to-lowest-level-in-over-40-years

https://www.theguardian.com/money/2017/may/09/uk-firms-struggle-to-find-employees-even-before-brexit-bites?CMP=twt_gu

I month or two back I wrote about why I don’t buy the idea that unemployment is as low as the statistics claim.

https://jon-chadwick.com/2017/03/18/unemployments-rising-in-the-chigley-end-of-town/

We have huge numbers of economically inactive, and plenty of others who are classed as full time self employed who aren’t working enough hours to come off benefits.   Just under a quarter of the UK workforce 16-64 are currently economically inactive but not counted as unemployed when the Government releases it’s statistics.

Historically there are plenty of examples of labour markets clearing at a level with a high level of unemployment

There was traditionally a view on the Left that it was in the interests of Capitalists to keep reserve of labour that could be used to depress wages. I was never entirely sure how this was actually happening, who co-ordinated these activities?  Was there a club too which, if you were invited, decided how bad unemployment would be.   I think that maybe there have been times when Governments made decisions that led to high unemployment but I am baffled how the Capitalist conspiracy works

What is true however that labour markets might not clear at a rate which leads to full employment, for lots of reasons, and if wages can’t fall then it is likely that markets won’t find a level that creates full employment no matter what steps the Government takes to stimulate demand.  For lots of manual roles it is increasingly easy for companies to replace workers with technology.  Most newspaper articles about technology substitution have photos of humanoid robots to illustrate them, but in reality it is mundane things like Self Service Checkouts in supermarkets replacing manual roles rather than anything more sophisticated.    Clever Digital technology is transforming big chunks of our leisure time, but it isn’t replacing workers to the same extent.  It is old fashioned technology which is doing that.   

It won’t take too long for people to find clever take downs of the technology substitution argument on the internet.  Mostly these rely on the work of Neo-Classical economist David Ricardo to explain why Capital spending and Wages are different things.   The problem is that real actual businesses don’t think or operate like Neo-Classical economists.  If they did no-one would have invested in Spinning Jennies.  As technology removes low value added, low skilled jobs the jobs that are left are more service oriented and require a more diverse range of skills.

All of this doesn’t mean that the NMW is a bad idea – on the contrary it is a huge success.  But this success has had a cost, and that cost is a group of people displaced from the workforce.   As the NMW/NLW goes up so does the risk of further displacement. 

Historically the answer that people have promoted to tackle problems like the has been to encourage increased Labour market flexibility. 

When right wingers talk about flexible labour markets they tend to mean taking away rights and protections to make it easier to hire them or treat them badly.  The acquisition of rights by workers is felt to be a big disincentive to hiring workers.   I am not sure I have ever experienced a real life situation in which this was true, and i can think of more examples where granting extra rights to employees has benefited organisations I have run.

There is however another approach to Labour Market flexibility – making markets more flexible by increasing labour market participation. The wider the pool of potential candidates the easier it is for employers to find someone who matches their requirements.

In particular the big change in women participation in the workforce, has imho, been more significant in increasing labour market flexibility than cutting workers rights, and I am strongly of the view that positive flexibility – increasing the pool of workers by encouraging people from a widest range of backgrounds into the workforce – is a much better way to make markets flexible than cutting benefits and reducing workers rights.  Immigration has much the same effect.

Higher Minimum Wages and increased Labour Market flexibility is all good news even if the Government’s statistics are dodgy.   

But none of this helps people who are unable to sell their Labour at £7.50 per hour.  All main political parties have embraced the NMW, and often compete as to who can make the most attractive promises on raising the hourly rate.

But much less thinking has been done about dealing with the economic and political consequences of Labour Market displacement.  It has become an invisible topic, with older, often male workers in unfashionable parts of the country becoming marginalised, and suffering all of the consequences of that, including short life expectancy.  The only Labour Market options open to them are Self Employment and the On Demand economy.

But just as the impact of the NMW has passed by the majority of the population so has the marginalisation that goes with it.   Left wing pop stars don’t right songs about it, and Left Wing politicians often can’t see beyond the White Vans and the Cross of St George.

When TV addresses this group at all it is in wholly negative terms.  Frank Gallagher has replaced Yosser Hughes.

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