Some of Britain’s biggest industries need to shrink and they need to start thinking about how to do it now.
Hospitality is one. Manufacturing could be another. These sectors are among many to say they cannot find the workers they need at the price they have traditionally paid.
With more than 1m advertised jobs unfilled, it has become a major problem holding back the economy.
If the workers are needed, the obvious answer is to ditch the “tradition” and pay them more. And if significant pay rises are out of the question, employers could offer flexible working, more exciting career prospects and better pensions.
Yet these demands are deemed unacceptable by the industries’ bosses, who fear they will increase their overheads, push up prices more than they already have, and drive customers away.
That raises the prospect of record vacancy rates for several years to come as companies soldier on, delaying projects and demanding overtime from existing staff, rather than sacrificing some of their profits to increase pay – and if that isn’t possible, pack up the business.
This year, thousands of firms will be driven to the wall, whether they want to get creative about filling job vacancies or not, because there is one arm of the state alive to the problem, and it is using the bluntest of instruments to make a difference.
Policymakers at the Bank of England want the UK economy to “shrink to fit” and have consistently raised interest rates for more than a year now to achieve that aim. They may do it again when they next meet later this month. A majority of the central bank’s monetary policy committee, which sets UK interest rates, have argued that a labour market that has too few workers chasing too many jobs is a recipe for high inflation, and that won’t do.
As with all economic questions, there is more than one answer. In this instance, employers could be urged to increase the supply of labour by training workers, giving them the skills they need.
But training has proved to be beyond most employers, and the government for that matter. The skills training budget has increased recently, but only back to where it was a decade ago when adjusted for inflation. The government’s apprenticeship levy was, and is, a farce, and is little used.
Employers, left to their own devices, are wary. They don’t want to pay for training until the labour market is in balance again, because they fear whoever they train will just decamp to another employer that doesn’t train workers and can therefore afford to pay higher wages.
This is where a government could step in, shoving aside the Bank of England and its jobs destruction agenda. Ministers could impose stricter employment rules and then subsidise those industries they like, while leaving others at the mercy of the market.
For instance, going back to the first example, hospitality could be left to fend for itself, while manufacturing businesses are handed extra subsidies. These subsidies would allow factory owners to retrain redundant hotel, bar and restaurant workers – not to work a lathe necessarily, but to join the admin, IT or marketing teams.
Of course there is little to attract a hotel worker to the manufacturing sector when at the moment they probably have a laugh with customers, enjoy flexible working arrangements and have an easy path into management if they want it.
The manufacturing sector is weighed down by rigid structures and union rules devised in the early 20th century. Professional institutes connected to manufacturing are much the same, which is why they cannot attract engineers.
Jeremy Hunt may try to alleviate the burden on businesses in his budget speech this week with proposals to attract parents and older workers back into the labour market while also relaxing the quotas for foreign workers. It’s a “bit of everything” plan that means the chancellor can avoid taking sides.
But it’s also a recipe for allowing zombie businesses – those that can just about make ends meet – to soldier on. And a recipe for making the taxpayer fund broad, unfocused subsidies that do little more than counter the extra costs of borrowing imposed by the Bank of England.
If coffee shops can only stay in business by hiring foreign workers, who are willing to accept wages below what their UK counterparts need for a decent standard of living, then maybe we need to cope with fewer coffee shops. The same goes for hotels, gyms and other non-essential parts of the economy.
The former chair of the Migration Advisory Committee, Alan Manning, has argued strongly that labour shortages “are almost always caused by poor pay and conditions”. It’s a message the chancellor should heed.
