Lazy Britain might just take its pay rise and snooze

 It’s time to address the anti-work culture that has gripped our post-pandemic economy

Source - Daily Telegraph - 16/08/23

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Wage growth is accelerating. Employers are paying more to fill vacancies and retain staff. And perhaps, just perhaps, inflation might just fall far enough to deliver real growth in living standards.

There is a catch to the latest data on the UK’s tight labour market, however. Some employers are finding that there are limits to the ability of higher wages to elicit greater effort on the part of workers; some would prefer to put in fewer hours instead.

This could be bad news for the Bank of England, struggling valiantly to bring down inflation, and for the UK’s hopes of addressing its critical labour shortages.

Ever since the pandemic, people have been quitting the labour market in vast numbers. Many took early retirement, leaving the rat race behind. That roughly half have found themselves living in relative poverty rather than enjoying the life of yoga classes and cruises they had hoped for does not seem to have lured them back.

Others have found they are too “unwell” to work, with over 2.5 million people pleading long-term sickness – an increase of nearly half a million since December 2019. It’s no wonder that there are shortages of labour even with immigration at record highs.

The hope for some was that stronger wage growth might fix this by enticing people back into the labour market. This theory may soon be put to the test. Tuesday’s data showed that wages are growing at 7.8% year on year, the highest rate since comparable records began.

As inflation continues to slow then the average worker may finally be getting a real term pay rise. This might be bad news for the Bank of England – where economists may rightly be worried that we are beginning to see a destructive wage-price spiral – but a period of real growth in wages might just unstick Britain’s sclerotic labour market.

Or at least, that’s the theory. The trouble is that it doesn’t always work that way. On the Today programme on Tuesday,

Candice Mason – who runs a coach hire company in Hertfordshire – said that when she increased wages to attract workers, her existing staff decided to put in fewer shifts behind the wheel. The extra money meant that they took more leisure time, and worked fewer hours.

It’s not an unreasonable desire. The economist John Maynard Keynes argued in 10 that in a century’s time, the world would be so prosperous that people would work only 15 hours a week; enough to scratch the itch, but not to detract from their leisure time.

His prediction hasn’t quite come to pass, but as the four-day week grows in popularity he might be right about the direction of travel. Average working hours for full-time employees have dropped an hour over the last decade, while a quarter of the workforce is now in part-time work.

On one level, of course, there is nothing wrong with this. So long as people are not receiving benefits instead, they should be perfectly free to decide how much they want to work and how much they need to live on. If people would prefer to read, or go fishing, or do some work in the garden, to driving a bus through the villages of Hertfordshire it is up to them.

And yet at the same time, the UK desperately needs to increase the size of its workforce if the economy is to have a chance of functioning properly again. The level of vacancies is still over 1 million, well above where it was in 2019, and each of these means an order remaining undelivered or a property unbuilt.

We can’t rely on higher wages to magically fix this mess. We need to restore the incentive to work, fix our dysfunctional welfare state, and get to grips with our failing healthcare system.

The first is straightforward. We need to lower marginal tax rates so that every extra hour worked means keeping money in your pocket, rather than handing it over to the taxman. To avoid the perverse reductions in hours worked we’ve just talked about, this should start with lowering the rate of National Insurance, which weighs most heavily on the lower paid workers likely to respond to pay rises by working harder.

Next, we need to finally reform our chaotic benefits system so that only those genuinely in need receive cash. It is crazy to be paying vast sums in welfare when there are so many jobs available. At the same time, we need to finally face up to the fact that the NHS is not fit for purpose. Some who want to work genuinely can’t, because they are waiting months for routine operations.

Finally, we need to address the anti-work culture that has gripped the country since the lockdowns. Work-life balance is all very well, but unless we put a little more emphasis on the work side of the equation and less on the balance we will keep on getting poorer and poorer. Instead of relying on the quick fix of mass immigration, we need to find ways of getting our own people working again.

The problem will not resolve itself. Higher wages may draw some people into work, but in other cases they’re making already crippling labour shortages even worse.

And to the extent that these rises are the result of a wage price spiral, they may even be a symptom of the underlying issue that Britain simply is not working. The Government must get to grips with this problem and make the reforms we desperately need.