Addison Lee is a well-established brand in the London taxi market. It appears that they too have been making use of the ‘gig economy’ in order to reduce labour costs and maximise profits. Businesses, such as Addison Lee, Uber, and Deliveroo, do not employ their workers, but, rather offer a service that connects a customer, someone who wants a taxi or take out, with someone willing to provide the service. This helps to keep costs down as Addison Lee do not have to pay the additional benefits that an employee would cost, such as holiday pay, pension contributions, etc. The worker does have increased flexibility, and the potential to earn more, but has less security and does run the risk of earning less than the national living wage of £7.50 an hour (25+, April 2017). The growth in the ‘gig economy’ is seen as one of the reasons why wage growth has been so slow when UK unemployment is so low (4.3%, July 2017). Economists would expect wages to rise as the labour market ‘tightens’ and firms struggle to fill vacancies. It appears the growth of the ‘gig economy’ has resulted in more flexible labour markets, which, in turn, has reduced the natural rate of unemployment, the rate at which we would expect to see workers ‘bid up’ their wage demands. Clearly the ‘gig economy’ is good at creating jobs, but courts, unions, and those politically left of centre appear to be concerned by the potential exploitation of workers whose incomes can be rather volatile and lack much in the way of job security and employment rights.
Theresa May’s migration target will intensify the UK constructions skills crisis and scupper her plans for affordable homes
Nearly 12% of construction workers are migrants, increasing to 45% in London. The Conservatives, at the time of writing, have pledged to reduce migration to the tens of thousands in order to appeal to the popular vote. However, with the number of workers leaving the construction industry outstripping the number of apprentices (future workers), construction firms will face severe shortages. Expect wages to rise (due to supply constraints) and some pretty intense lobbying by construction firms to loosen visa restrictions for certain trades.
The significant differences between the proportion of migrant workers in London relative to the rest of the UK is a good example of geographical immobilities. Migrant workers are more ‘footloose’ and willing to move to where the work is.
I suspect other industries, such as health care and hospitality, will follow, making the setting of migration targets rather pointless.
Economists suggest that the balance of power in the UK labour market has shifted to the employers, evidenced by the growth in zero hours contracts and the ‘gig’ economy. Alan Manning (LSE) suggested that all employers wield monopsony power to an extent and I, for one, am inclined to agree. I highly recommend looking at Manning’s work in more detail for a deeper understanding of monopsony power in labour markets.
A recent report by the London School of Economics (LSE) on executive pay has cast light on a rather forgotten corner of labour market theory – that of economic rent and transfer earnings. The wages of most workers can be divided into two different parts. The first part is the transfer earnings, or money which must be paid to the worker in order to persuade them to do the job. This can be thought of as the bare minimum the worker will accept. This may well be affected by such factors as the next best employment option open to them and the wages it might bring. The rest of their salary is known to economists as economic rent, or the extra they receive above their transfer earnings. This can be seen as the earnings equivalent of supernormal profits to a firm. It is extra payment which the worker does not really need in order to persuade them to do the job, but which they receive in any case.
The recent LSE report, prepared after extensive interviews with the headhunters who recruit CEOs, came to some interesting conclusions. The first is that the average annual salary for a FTSE 100 CEO is now £4.6m per year. It is often suggested that the for most of those individuals the vast majority of this money represents transfer earnings rather than economic rent. Why? Those of us who earn considerably less, which is statistically most of us, are told that there are very few who can actually do such jobs and that there is a global market for this limited supply of very talented individuals. If large UK firms do not pay these high salaries then these workers will go elsewhere, particularly the US. In other words, the opportunity cost for them in accepting a job with a UK firm is very high because of the other options open to them. Therefore, even if their salaries are in the eye-watering region of £4.6m, they are receiving little in the way of economic rent.
However, they LSE reveals that headhunters think differently. Firstly, they describe most FTSE 100 CEOs as “mediocre” and they comment that 100 people could have filled the job just as ably as those who actually are chosen. This suggests that these workers are not as limited in supply as they themselves would have us believe, and therefore that the opportunity cost for them of accepting a CEO post might not be as high as the picture they have painted because they would find it difficult to earn such a salary elsewhere. If much of their salary is, in fact, economic rent then labour market theory suggests it can quite safely be taken in the form of tax without altering their behaviour in the slightest and without affecting economic efficiency It is possible that Thomas Piketty could make some useful suggestions in that direction………..
Links to newspaper articles on the LSE reports can be found below:
Guardian undercover reporters find world where staff are searched daily, harangued via tannoy to hit targets and can be sacked in a ‘six strikes and you’re out’ regime
Nice example here of Sports Direct exploiting their monopsony power as the major employer in a small town, a determinant of monopsony power in labour markets. Alan Manning (LSE) suggests that all employers exert some degree of monopsony power as workers are reluctant to move for the fear of the unknown. This power helps firms to drive down wages lower than they should be in a perfectly competitive market.
Clearly the low cost, low price model comes at a cost….to the workers…minimum wages, zero hour contracts, and little job security. Whether or not these findings make a difference to the brand and sales ultimately depends on whether existing customers read and react.
Courtesy of Harry Gould – L6 article of the week
A 20p increase in the hourly national minimum wage has comes into effect on Thursday bringing the new adult rate up to £6.70 an hour.The new rate comes into force ahead of the planned national living wage of £7.20 and hour for over-25s from next April.The statutory figure for 18-20 year olds has risen by 17p to £5.30 an hour and pay for under 18s has increased by 8p to £3.87 with apprenticeship rates rising to £3.30.The government says the 3% rise in the adult rate is the biggest real increase since 2006 and moves the minimum wage closer to the average wage than ever before.But TUC general secretary Frances O’Grady said the increase is “welcome but hardly cause for euphoria.”Meanwhile, a report by the Resolution Foundation found the proportion of workers earning the legal minimum is set to more than double over the next five years as a result of the national living wage.The think-tank said women and older workers are particularly likely to be affected.Business Secretary Sajid Javid said: “As a one-nation Government we are making sure that every part of Britain benefits from our growing economy and today more than 1.4 million of Britain’s lowest-paid workers will be getting a well-deserved pay rise.”
The movement pushing for a $15 per hour minimum wage has coincided with falling prices for computers that can replace human labor in some low-skill jobs.
Article of the week from Elle Li.