The Guardian’s Larry Elliott asks the pertinent question: “what’s so wrong with labour shortages driving up low wages?”:
If labour shortages are driving up the wages of low-paid workers then what is wrong with that?
There may well have been worse decades than the 2010s to be a wage earner but you would have to go back to the 19th century to find one comparable…
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The flipside of over-reliance on unskilled, cheap labour has been persistent underinvestment – is now coming apart then that is a welcome development and not a bad thing…
Employers have only a limited range of options if they find themselves short of staff and it is not possible to call up reinforcements from overseas. They can invest more in labour-saving equipment; they can invest more in training to raise skill levels; or they can pay more in order to attract staff. It is not immediately obvious why any of these should be either impossible or undesirable…
Against this backdrop, it is perhaps unsurprising that Brexit divided the nation in the way it did. If you were in a relatively well-paid job and not at risk of being replaced or undercut by a worker from overseas, you were likely to vote remain. The Polish plumber was cheaper, the Lithuanian nanny was better educated, so what was not to like?
If, on the other hand, you were part of Britain’s casualised workforce, needing two or more part-time jobs to get by, you were much more likely to vote leave, on the grounds that tougher controls on migration would lead to a tighter labour market, which in turn would push up wages.
For those who have nothing to fear from open borders, labour shortages are evidence Brexit is flawed. For those not so fortunate, it is doing what it was supposed to do.
Meanwhile, the Financial Times’ Martin Sandbu claims that labour shortages are driving a productivity boom by forcing companies to invest in automation and training:
Higher productivity is about doing more with less, and there are two obvious ways in which high-income economies have been doing so since last year.
As Ozyildirim and de Vries say, “increased adoption of digital technologies could lead to a productivity revival … Slow labour supply growth and labour shortages could spur companies to focus more on innovation through accelerating automation and digital transformation”…
Hardly a day goes by without headlines about managers complaining they cannot find more staff. In other words, having to do more with less, or being more productive.
Economic history and common sense suggest that when demand outstrips supply, businesses up their game by increasing productivity. If wages rise, they have no alternative – or they will lose their workers to more productive competitors.
Productivity growth is likely to benefit from a combination of three things: demand that is expected to stay strong; affordable capital and technology; and training that constantly improves workers’ skills.
Consistently achieving this combination means keeping employers on their toes to compete for workers…
An economy where there is more than enough demand for everyone’s contribution is an economy that thrives: one where workers enjoy opportunities, where markets reward productivity improvements, and where the outlook warrants investment in expansion…
As we hopefully beat back the virus, we should learn to live with labour shortages.
MB has argued repeatedly that giving firms easy access to migrant workers is a mistake. Not only does it encourage exploitation and push down wages, but it also stifles Australia’s long-run productivity growth by discouraging firms from adopting labour-saving technologies and automation.
Put another way, without such easy access to cheap migrant labour, Australian firms would be forced to lift wages and conditions to attract local workers. These higher wages would, in turn, incentivise firms to invest in labour-saving technologies and automation, lifting the economy’s productivity.
Long live labour shortages.