Over the past few months, key workers have been applauded, cheered and revered as heroes. They have kept the country ticking over during the coronavirus crisis.
By differentiating minimum wages between industries, key workers’ could receive the pay rise they deserve.
Healthcare workers, care home workers, emergency services, shop workers, delivery drivers, and warehouse operatives have pulled up their socks and kept the country running.
These roles are now celebrated and applauded as some of the most important jobs in the country. Justifiably so, two-thirds of Britons now value ‘low-skilled’ workers more since the COVID-19 crisis.
However, the social celebration of low-skilled workers is a stark contrast to the market’s valuation. Most key workers are poorly paid with four in ten key workers paid less than £10 per hour. For many these roles, labour supply is in surplus and the barriers to entry are scant.
Consequently, the market poorly values them as they don’t require levels of education, licenses, training or involve dangerous practice.
Other key workers like nurses receive low levels of pay despite the training and skills required. This may be a result of nurses’ intrinsic motivation to perform socially productive roles. In a sense, this is a ‘goodwill tax’ as workers’ goodwill is exploited by employers.
Mounting pressure for pay rises for key workers’ looks unlikely given the impending recession and huge government deficit.
The economic fallout from coronavirus is huge. The UK economy shrank by 20.4% according to the latest figures for April and unemployment is expected to more than double. In addition to this, over nine million workers are on the furlough scheme. Once this scheme subsidies, a significant amount of these will have no firms to return to.
Further to this, crashing out of the EU without a deal adds extra economic pressure. Currently, the EU market accounts for 46% of the UK’s export and CBI boss, Carolyn Fairbairn, has warned that British firms don’t have the resilience to cope with a no-deal Brexit after the battering of coronavirus.
There’s already a perpetual shortage of labour supply in nursing, exacerbated by increased demand from coronavirus. Despite modest growth in the number of nurses in 2019, vacancies increased to nearly 44,000 in the first quarter of 2019/20. A figure equivalent to 12% of the nursing workforce.
Moreover, tightened immigration controls and a potential no-deal Brexit means many key workers, including nurses, wouldn’t meet the entry requirements.
23% of hospital staff and 40% of food production workers are migrants. EU immigrants specifically make up roughly 5.5% of NHS staff. This equates to 9.1% of doctors in England, 6.0% of all nurses and 5.8% of scientific, therapeutic and technical staff. Worryingly, the percentage of NHS joiners from EU countries has fallen from 19% in 2015/16 to 6% in 2019.
Similarly, 9% of adult social care workers are EU nationals. An industry where one in ten social workers and one in eleven care workers roles remain unfulfilled with demand increasing in line with the UK’s ageing population.
Nursing represents a monopsony setting, where the NHS is the major employer. In this setting, a higher minimum wage would increase wages and employment levels and promote the efficiency of the labour market.
In addition to the health and social care sector, other entry-level jobs which do not require qualifications or masses of experience will be adversely hit by the recession. Competition for jobs will be large and firms will reduce wages at the bottom end of the income distribution.
The hospitality industry, for example, has experienced a collapse in demand accompanied by major shifts in labour supply. This entry-level industry does not require high skills or formal degrees meaning it will be overcrowded by workers from other sectors during the recession. Such shifts in supply and demand will push down wages.
The IT industry presents another interesting example. Demand for IT professionals has remained high whilst the qualifications also remain scarce. Consequently, as demand increases the labour supply will follow a similar pattern, increasing average wages.
To tackle this, the government could implement different minimum wages, taking into account the economic context. This would replace the current ‘one-size-fits-all’ process with minimum wages that currently differentiate between ages.
The UK could follow the lead of Australia, New Zealand, Germany or Sweden. Sectoral or occupational differences can take into account sector-specific economic factors and could also be complemented by a general rate applicable to non-specific activities, such as in Costa Rica.
In Australia, industrial awards provide minimum standards of employment for various industries and occupations. Higher minimum wages are paid depending on workers’ experience and qualifications. Similarly, in Germany, eleven sectors have sectoral minimum wages ranging from 9.27 Euros to 16.53 Euros per hour.
Although not the main topic of this article, it’s important to note that increasing the minimum wage is not a substitute for a social security system. Increases must be combined with other methods that address the barriers to entry like time, childcare or transport.
The rolling back of benefit entitlements combined with rising living costs in recent years has stripped many low-income workers of much-needed support.
Despite increases in hourly wage, low-income families have experienced roughly the same earnings growth as the average family. This is down to rising housing costs and benefit cuts. Consequently, one in eight workers are now living in poverty in the UK, totalling 1.2 million.
A minimum wage differentiated between sectors combined with a program to break down the barriers to entry will prevent low-skilled jobs from being flooded and professionalise these roles to attract and retain workers.
The UK’s one-size-fits-all approach is outdated and holds us back from delivering the pay rises our key workers deserve. Now that key workers are socially valued, it’s time to translate this into higher wages.