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Is There No Problem That Brexit Cannot Solve?

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It’s not uncommon to hear people bemoaning the manner in which Britain only ever produces low wage, low productivity, jobs. This is why real wages have been rising only slowly. What we need instead is a policy to force up productivity, thereby wages.

Hmm, OK, there’s at least the nub of reasonable economics in that, productivity is pretty much everything in the long run. So, how do we do this?

Perhaps we corral all the labour force into classrooms for three years so they can be properly taught critical race theory? Well, it’s an idea but modern academia seems not to raise productivity very much if we’re to be honest about it.

We could demand that wages be raised. Well, we could, although that leads to certain problems. It will be true that the productivity of those in work rises but at the expense of those priced out of work entirely.

We could, perhaps, restrict the availability of cheap labour. That would increase the pay of those working and also increase the pressure on employers to invest in raising productivity. Sounds like a plan even:

Experts estimate that there are currently between 10,000 to 15,000 empty roles in the meat processing industry, equal to more than 10pc of the entire workforce, with vacant roles ranging from factory cleaners and packers, to highly skilled butchers.

Hmm.

Up until recently, many meat processing posts had been filled by EU nationals, in particular people from Eastern Europe. In some factories, EU nationals accounted for as much as 80pc of the workforce.

But, since the pandemic hit, many of those have gone back to their home countries, with travel restrictions preventing them from returning. Britain’s post-Brexit visa rules, meanwhile, have stopped others from the bloc from filling empty positions because workers in the meat industry don’t meet the set amount of points needed to enter under the new immigration system.

OK, so Brexit creates the skill and labour shortage.

Shortages are most acute in one specific area: butchers, a highly skilled role which requires 18 months of training. “That’s what we’re really lacking,” Nick Allen, chief executive of the British Meat Processors Association (BMPA), says.

OK.

Up until late last year, a government advisory committee had been recommending that butchers be placed on the shortage occupation list (SOL) to make it easier for businesses to employ foreigners post-Brexit.

But we’ve already got a system which allows that:

“Butchers can still be sponsored as skilled workers where an employer is offering a salary of at least £25,600, in line with other non-shortage occupations.”

Cool. We’ve a shortage of butchers, the pay for butchers will rise, we’ve also a system in place to ensure that this is not too extreme a rise in costs in the industry.

We seem to be done, eh? Is there any problem which Brexit doesn’t solve?

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8 COMMENTS

  1. Raising wages is a decrease in productivity, not an increase.
    Yesterday I made 100 widgets and paid £100 in wages.
    Today I made 100 widgets and paid £125 in wages.
    Yesterday’s productivity was 1 widget per pound, today’s productivity was 0.8 widgets per pound. Productivity has gone down.

    • The trouble is that economists and business people use the same word – ‘productivity’ – to mean related, but different, things. If I’m running a widget factory, I’m interested in how many man-hours (or machine-hours) it takes to produce a standardised output (in this case, a widget). If a new process allows two widgets to be produced in the same time as it previously took to make a single widget, then I’ve doubled my ‘productivity’.

      But economists simply take GDP and divide by the total man-hours worked in the economy and call that productivity. Within a single country, the two different types of productivity tend to move in parallel, but the wheels come off (a) when we consider activities other than widget production, and (b) when we try to do international comparisons.

      How do you measure the output of a doctor or a teacher (or, really, the majority of jobs in a modern economy)? Economists simply dodge the question by using GDP, which means the value of a teacher is the cost of paying them. Double their salary and you’ve doubled their ‘productivity’. Similarly, if you’re comparing the productivity of the UK and Germany (as people are wont to do), and the pound rises 10% against the euro, then our ‘productivity’ increases by 10%, without the tiresome bother of anybody on the production line at Nissan needing to turn a spanner more quickly.

      • @Quentin

        Proper economists don’t fall into the forex trap you outline. Most calculations of productivity (Total factor productivity or TFP) are done using constant Purchasing Power Parity (PPP) exchange rates, which means that output is not affected by market exchange rates. It is true some nitwits do use market exchange rates, but they tend to friends of the Murphmeister, so not real economists.

        In terms of output, it is true that the public sector poses problems primarily because there is no price put on the service provided (doctors, teachers etc), this is not true for the bulk of service sector jobs, because we can identify prices (there are problems with measuring the output of the service sector – primarily to do with difficulties in data collection.) At the margin it might be possible to increase “productivity” of the economy as a whole through paying teachers more, at least temporarily, but remember that this comes with costs – an increase in taxes, which will reduce private sector output and thus productivity.

        • Fair points, but PPP is almost as nebulous (and erroneous) a concept as GDP. And it’s still true that PPP adjusted exchange rates can move significantly, affecting apparent ‘productivity’.

  2. “We could demand that wages be raised. Well, we could, although that leads to certain problems. It will be true that the productivity of those in work rises but at the expense of those priced out of work entirely.”

    Ok. so you think that it’s a bad thing if people are prevented from working at a certain wage.

    “We could, perhaps, restrict the availability of cheap labour. That would increase the pay of those working…”

    But now you advocate the opposite – saying we should prevent some people from working at that wage. So which is it – good or bad?

  3. @Charles

    The difference is that the former (minimum wages) prices a proportion of the workforce out of jobs. The latter prevents EU nationals from joining the workforce. One of the consistent UK issues is that long run productivity growth is poor, and one explanation is that rather than investing in physical and human capital to raise productivity, the UK imports workers.

    On the flip side, Tim is discounting the increase in search costs and administration costs that the rules – visas, SOL etc impose. Given the relatively low wages involved, even quite small admin costs may make bringing in foreign workers less attractive.

    The logic is that we should then train people already in the UK workforce or joining it as youths to work as butchers, which will raise the overall productivity level of the UK workforce.

  4. Eighteen months of training isn’t that huge an investment on the human capital side. It’s also a starting point which can support a move into retail or hospitality (a few of the prominent chefs are ex blockmen).

    The physical capital side is more interesting to me – how do you improve the productivity of the butcher (or the cleaner) to go with the higher rate of pay? Robot trollies to take fetching and carrying out of the job, restructure the worspaces so they can be cleaned (hosed off) more quickly,…?

  5. Groping around these concepts while trying to explain them to a friend today, I think part of the proplem is people mixing up and confusing “production” and “productivity” and using the terms interchangeably and wrongly. I’d have to think it through a bit to get a coherent set of words together.

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