The supply chain crisis shows it’s time to rethink the minimum wage

A paper written by Bank of England economists illustrates how employers have accrued too much power to dictate terms but also shows unionised employees do better. Labour shortages don’t occur when workers enjoy fair pay and conditions, argues James Moore

An HGV driver shortage is hitting deliveries across the UK, leading to some businesses paying bonuses (PA)

A rare positive to emerge from the Brexit-driven crisis in the UK’s supply chain is the increasingly widespread recognition of the contribution low wages in key sectors have made towards its creation.

Amid talk of food shortages at a “worse level than at any time I have seen”, according to Co-op boss Steve Murrells, it’s high time to have a discussion about addressing the issue.

Most of the fixes proposed or set in train to do that are short term at best, and based on the notion that the crisis is temporary and will pass. Tesco’s £1,000 golden hello for lorry drivers would be in that category.

Business leaders have also loudly called for a relaxation of the post-Brexit visa scheme. This is more promising. But visa schemes are fiddly and the environment for migrants in the UK is still hostile as a result of government policy. If the primarily eastern European workers who did the jobs that are now vacant – such as lorry driving – felt they were getting value for the work they did, they mightn’t have departed in such large numbers in the first place. Take note: this could be with us for a while.

The problem has in part been caused by those at the top of Britain’s supply chains, such as the supermarkets, relentlessly demanding lower and lower prices from their suppliers because they have the power to do so. Their suppliers have responded by engaging in a mad race to the bottom when it comes to pay, with only the minimum wage serving as a floor, because they too have had the power to do so.

The UK labour market has thus become deeply flawed. Employers have too much power and their workers too little. Whether cost-cutting demands come from those at the top of the supply chain or simply from shareholders, it’s too easy for them to take aim at their employees. Too many enjoy an effective monopsony, the evil twin of monopoly, with the buyer (of labour in this case), rather than the seller, in command.

Except, that is, when unions are involved.

This role they play in enhancing wage outcomes was recognised in a paper for the Centre for Macroeconomics penned by Bank of England economist Will Abel, Silvana Tenreyro, a member of the Bank’s interest rate-setting Monetary Policy Committee, and Gregory Thwaites, currently on sabbatical from that august institution. “Monopsony in the UK” was published in 2018 but is still relevant today.

“We have shown how higher levels of concentration (in corporates) are associated with lower levels of pay for workers not covered by a collective bargaining agreement,” the writers conclude. “For those who are covered by a collective bargaining agreement... this negative correlation between pay and monopsony mostly disappears.”

It hardly needs stating that low pay is a thoroughly bad thing.

One reason for the Conservative Party’s embrace of a national minimum wage it once fiercely opposed, and for its pre-pandemic promises to increase it, was the Treasury’s unhappiness with the way the state ended up having to subsidise large groups of workers who didn’t earn enough for them and their families to live on, through tax credits and the like.

The trouble is that the minimum wage, since rebranded as the national living wage (even thought it isn’t), serves as an imperfect floor. It doesn’t go far enough. Workers on it, or something near to it, quit as soon as they can find something better. It’s one reason why they aren’t being replaced in key sectors.

Some employers have also sought, and sometimes found, ways around even a too low minimum. Casualisation and the turning of their workers into freelancers, for example.

There has been some pushback against these and other wheezes, largely as a result of unions taking to the courts. But don’t imagine this will stem the tide of loophole creation. Employment lawyers aren’t going to be short of work anytime soon.

The minimum wage is also particularly poorly suited as a floor for skilled workers. And a truck driver is a skilled worker. They have to have special licences, which require training to obtain, the cost of which is frequently borne by them.

It is time to recognise the role the unions could play in improving wage outcomes and preventing problems like these from recurring. They need bringing in from the cold.

This holds true for Labour as well as the Conservatives. The rhetoric on work issues from the former has improved of late, thanks to the belated recognition of this as a potential issue that it could exploit, but it could still do better.

Collective bargaining, and the right to engage in it, would help bring some balance to the tilted playing field that currently exists in the workplace.

Another avenue to explore is the reintroduction of wages councils, which could set more effective floors in sectors of high importance. The coalition government of David Cameron scrapped one of the last remnants of those, the Agricultural Wages Board, in England. Needless to say, the agricultural sector is not heavily unionised and some crops, where visa schemes have been absent, have been left to rot.

Perhaps this is another area of divergence from the Cameron/Osborne years the Johnson government might care to explore? I know we shouldn’t get our hopes up but the tide will eventually turn and the current crisis could play a role.