What’s causing the rise in hospitality wages?
Experts will have a clever explanation, but the answer seems obvious
The one thing everyone knows about the Black Death is that higher death rates among the poor (around 50%, compared to 25% for the gentry), led to rocketing peasant wages.
At the time the Crown’s response was to pass a number of laws, such as the 1351 Statute of Labourers, which made it illegal to demand higher wages than before the plague, and attacked the “malice of servants” who “for the sake of their own comfort and greed completely disregard the said ordinance” and demand “outrageous wages”.
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Anyone who tried to charge above pre-plague prices was given three day’s imprisonment in the stocks. As with most market-fixing legislation, it didn’t work because the labour of peasants was just worth too much; if you didn’t pay them a certain amount, they wouldn’t do the job. When the authorities built stocks in Gloucestershire to punish those who took wages higher than the maximum permitted, they had to pay the carpenter who built it 5 and a half pence a day, twice the legal limit.
If only Edward III’s government were able to do what 21st century Westminster governments have got used to doing, importing cheaper workers from abroad to keep wages down. Luckily that wasn’t available, because higher wages tend to lead people to invest in mechanical improvements, and this may even have led to the invention of printing.
The current pandemic appears to be having a similar effect on the job market, albeit to a much smaller degree, as the Black Plague several centuries ago.
As today’s Times reports, wages in hospitality are now rocketing. This has, until now, been reported as “labour shortage” rather than “wage rises”, as if it’s a bad thing. Most news reporting rather echoes the poet William Langland’s complaint of peasants that “Draught-ale was not good enough for them anymore, nor bacon, but they must have fresh meat or fish, fried or baked”.
For the past quarter century most economists have been in agreement that high immigration doesn’t depress the wages for native workers in direct competition; there are some dissenters, notably George Borjas, but generally the consensus has been that, although supply and demand are the central facts of the discipline, in this case it doesn’t apply because complex reasons.
I’m not an economist, and I have Taleb-levels of respect for the profession, but it always struck me as obviously untrue; it’s the sort of clever counter-intuitive idea that sells books and sounds intelligent, like the early expert advice that masks don’t protect from Covid because when did covering your mouth with cloth stop infection? Most of the time, counter-intuitive ideas are wrong and the obvious, boring things your granny believed are right; if you have more workers entering a market, wages will go down for those in competition.
So why are wages rocketing? I’m sure economists have a clever explanation for it, but the exodus of one million migrant workers since the epidemic began seems like the obvious one.
Or perhaps it’s all a bit more complicated than that, or something.
And the shocker here is the (somewhat muted) response to this of the Remain wing of Labour, the Starmer/Thornberry wing if you like, (and the Corbynite wing is staying stumm on this for reasons of Internationalism, which is more important to them than the wages of the poor), as evidence of rising wages started to emerge over the last quarter. The progressive left is finally acknowledging, grudgingly and with very bad grace let’s be honest, that wages were depressed in the UK for over a decade, because as one of the two hub economies in the EU generating large numbers of jobs, the UK quite understandably attracted vast numbers of workers, to the detriment of the earnings of the locals, not just at the lower unskilled end (baristas, taxi drivers etc) but also things like semi-skilled office work, (the secretary or call centre worker on the minimum wage), leaving none of them with any chance of entering the housing ladder.
And utterly grimly hilarious, is the tacit message the progressive left seem to be drawing from the discomfort of the likes of Tim Martin, which is: ‘Haha, we *told* you this would happen because of Brexit – the way to keep wages low for big business is to allow a free for all of workers competition from everywhere’. Instead of saying hospitality and other industries being forced to pay higher wages to the locals is a good thing, the left are saying: ‘hey businesses, we, not the Tories are business friendly, and if you don’t want to pay higher wages, there’s always people willing to work for less over there, so let’s just get them over’.
A part of the sensibility flip the left and right seem to have undergone over the last decade.
There are three main kinds of inflation:
1)Wage inflation, and without commensurate productivity increases = very bad kind of inflation as it cannot be controlled except by letting the increase inflate away.*
2) Shortages, in this case supply issues and causes inflation which is transitory as supply is repaired, not too bad. This is what the USA Fed (Powell) says is the situation. (he is wrong probably, but cannot raise interest so has no tools to do anything)
3) Excess Liquidity. as in MMT and the 50 Trillion printed globally – all that money seeks a home, and thus inflates stocks, commodities, bonds, and hard assets. This is controlled by ‘Tapering’ and raising interests and Taxes. (but may topple the economy if attempted at this very late state.)*
*) Tech increasing productivity via robot manufacturing, software increasing productivity, is HIGHLY Deflationary and is what the cool heads say will solve the inflation above, but that is just wishful thinking in the short term (10-20 years)
Wage inflation can promote technical advances and productivity increases. In fact that’s the only way that we have historically gotten richer.
Exactly, wage inflation coupled with increased productivity – that is totally the path to better society. Wage inflation chasing the same number of goods leads to financial disaster.
This silly writer uses the Dark ages – and misses out the point, the Black Death broke Serfdom. The people were tied to the land till the farmers were killed in such numbers the farms laid fallow, so any lord getting a farmer showing up asking for work was given a place and better wages – rather than sending him back to his proper master to be flogged as he would have when his farms were full. This freed the INDIVIDUAL to be entrepreneurial, it stopped the Communist style of central planning and made individuals able to chase greater productivity – that was the Key.
Yes, the Black Plague DID cause wage inflation – BUT it also caused a huge increase in per person productivity which more than paid for it.
But which came first? Also how do you increase retail productivity.
How did a plague cause an increase in productivity? It didn’t, there was still the same output per person, no technological advances at the time, it was simply that due to a lack of workers people had more options of who they worked for, and as such could demand higher wages.
Higher wages in advanced economies also tend to promote increased productivity, as businesses are more eager to invest in new tools and technologies in order to keep wage costs down, something that isn’t an issue in low wage economies where they can simply hire more labour instead
Low wages lead to taxpayer funded benefits effectively subsidising big business. This is a dubious way to go on.
Yes and it’s time the same realisation was applied to housing and other services, all of which apparently suffered no negative impacts because of very large scale immigration in the last 15 years. Its 40+ years since I studied economics at school, but one of the first things we covered was supply and demand. Apart from certain exceptions, (which I can’t recall haha except I think luxury items might be one of them) if supply exceeds demand (as in the case of labour) the price of that commodity will go down. It was ever thus, ask the dockers waiting at the gates for a job. If demand exceeds supply either the price of the commidity(housing) rises or in the case of certain commodities, supply has to be rationed in some way(health care appointments, school class sizes). It’s not racist or zenophobic to state this, it’s an economic fact of life. The living standards of the working class were sacrificed to the belief in open borders.
Of course cheap labor doesn’t depress wages, what an absurd notion.
Of course, then there is personal experience such as being told “ Think yourself lucky you’re not earning minimum wage, like the Pole in the other workshop” when asking about a pay increase. And this response from a life long, card carrying,Labour supporter.
Indeed what a stupid notion, presumably only understood by stupid people, that lots of cheap labor depresses wages and leads to the exploitation of migrant labor, which in turn leads to the exploitation of the local labour force, degree by degree.
I am a tradesman in USA and the Mexican migrants, young single men living togther and spending nothing has destroyed the construction entry level job pay so natives no longer can afford to do construction entry level work. It has been VERY bad for the low educated American who would have gravitated to that. Also the dishwashing, law care, meat packing, and on and on. The low skilled American, (unless bright and attractive so can always get some sales job) has been SCREWED by the migrant labour. And YET it is the Left which keeps the border open, and lets the illegals work for low pay!
Sure. It’s always been nonsense to say that low skilled immigration will increase wages. It just can’t. The economy is dynamic alright but lower wages aren’t going to go though the economy to push wages up. In fact since there’s some labour substitution going on spending power will drop.
High skilled immigration is a bit different if the job can genuinely not be filled locally. But that’s rare.
Great article! Your observation of economists reminds me of George Orwell’s quote:
“You have to be an academic to believe some things; no ordinary person would be so stupid.”
Another factor in addition to workers leaving the UK, as you well point out, is that many have also by now retrained in other fields.
I think the fact that economists are so wrong on this may be connected to the number of foreign students paying higher fees in universities.
It’s very hard to convince a person of something when their job depends on them not being convinced of it.
On the topic of Economists, I agree with Ed West completely. And not many would have ever associated either Albania or Bangladesh with roaring economic success, but it’s true, both these economies have had a miracle turnaround in recent years. And disparate as they may seem, success in the two countries has one thing in common: Respected academic Historians at Oxford and Cambridge have already proved that both Albania’s and Bangladesh’s rise has coincided (to the day) from the time when the respective governments there rounded up all Economists, and either deported them to Venezuela or had them shot-at-dawn one misty morning. Facts!
Printing money will always cause inflation regardless of immigration. The amount of money printed in the last year has been phenomenal, unprecedented, far worse than 2008.
Not sure masks work though. Where is the evidence showing that it actually works? Beyond the “granny” idea that if you cover your mouth the virus must not go as far, there is not much solid evidence.
Phew, glad to find someone here flagging that. Mask mandates are not the same thing as masks and have had zero impact, as can be seen by anyone who explores the data for a few hours. If they worked then cases would surge days after mask mandates were removed and drop sharply when they were added, but no such things can be seen in the data. See the experience of Texas most recently for example.
This probably happens because most COVID cases are transmitted at home, in care homes and in hospitals, where people can’t wear masks all the time anyway.
The entire reason the Despicable Boris gov is keeping lockdown creaking along is to keep paying out the workers to sit at home instead of returning to work.
Biden is doing the same in USA (Till September), paying $300 top-up onto the State unemployment so sitting at home pays about an average of $17 an hour, much better than most unskilled jobs. USA has millions of jobs not being taken for this reason!
There is your reason workers are not working. Your Black Plague Analogy is 100% FALSE!!!!!! It is in fact willfully to mislead. (and masking publicly did NO good, but tons of psychological harm!)
But then as much as 1/2 small businesses will not recover this plandemic situation – and ‘Wage Inflation’ is the most destructive of ALL forms of inflation, and is 100% being intentionally created by government for nefarious purposes by the disincentives to work they enacted and continue.
So you are opposed to all kinds of wage increases if you think that wage inflation is always a disaster?
What was misleading about the Black Death aftermath he mentioned? It’s historically valid.
That says more about the pitiful minimum wage on offer in the States than anything else. If US$300 a week is more than most earn from full weeks work then no wonder the country is the most financially unequal on earth
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