{"id":25741,"date":"2014-08-18T10:03:25","date_gmt":"2014-08-18T09:03:25","guid":{"rendered":"http:\/\/www.taxresearch.org.uk\/Blog\/?p=25741"},"modified":"2014-08-18T10:03:25","modified_gmt":"2014-08-18T09:03:25","slug":"there-isnt-an-army-of-low-skilled-workers-in-the-uk-there-are-lots-of-underemployed-skilled-people","status":"publish","type":"post","link":"https:\/\/www.taxresearch.org.uk\/Blog\/2014\/08\/18\/there-isnt-an-army-of-low-skilled-workers-in-the-uk-there-are-lots-of-underemployed-skilled-people\/","title":{"rendered":"There isn’t an army of low skilled workers in the UK. There are lots of underemployed skilled people"},"content":{"rendered":"

Larry Elliott has a piece on the UK's productivity in the Guardian this morning<\/a> and whilst Larry and I may both be members of the Green New Deal group I have to say that I think on this occasion Larry is reaching inappropriate conclusions.<\/p>\n

I stress that in saying that I do not think Larry is wrong, per se. He asks conventional questions on productivity and comes to fairly conventional answers. But as is so often the case in economics, it is his assumptions that are awry. This is clearly indicated in his last paragraph where he says:<\/p>\n

A new army of low-paid, low-skill workers is depressing the level of average earnings growth across the economy and forcing the Bank to revise down the level of unemployment consistent with stable inflation.<\/p><\/blockquote>\n

I seriously doubt there is such an army. Yes there are a lot of people willing to take low paid work. It's also true that those people have, in too many cases, very limited demands made of them. But it's simply wrong to think that they are \u00a0unskilled as a consequence. \u00a0A great many of them will be very skilled, \u00a0and will be vastly under using those aptitudes \u00a0in the work that they are asked to do.<\/p>\n

It is true that this may force the Bank to revise down the level of unemployment consistent with stable inflation, \u00a0but in my opinion what this really implies is that the wrong question with regard to productivity is being asked.<\/p>\n

I think it fair to say that productivity is considered a measure of output, usually measured in in terms of monetary revenue, compared to the value of inputs into an economic process, those two inputs usually being labour and capital. \u00a0Implicit, therefore, in this process is a measure of profit, \u00a0which will reflect the difference between the value of inputs and outputs. \u00a0There is also implicit in this definition an expectation that labour output per unit input should rise as capital is increased; the relative reduction in the cost of labour therefore providing the return to capital.<\/p>\n

What Larry makes clear - and what many others are confused by, \u00a0including the Bank of England - \u00a0is that these relationships are not working as expected. \u00a0The relative price of labour is going down \u00a0whilst the volume of labour used is increasing \u00a0with the result that apparent productivity is falling and returns to capital are at most stable, meaning that more employment is being generated without there being any risk of inflation. \u00a0This is an environment \u00a0that most economists have never considered a plausible scenario \u00a0and for which they have not, as a result, planned. \u00a0It is, however, that lack of thinking that explains their confusion.<\/p>\n

Firstly, this outcome was obviously foreseeable. \u00a0For three decades there have been continual attempts by successive governments to undermine the power of organised labour, to reduce its capacity to enforce its rights, to increase the power of employers to dispense with labour at will, and to reduce overall collective wages. \u00a0The result is the current labour market. \u00a0It is not one that business apparently wants. \u00a0It is most certainly not one that most employees want. \u00a0It is clearly one that is disadvantageous to society. \u00a0But it is the outcome that some theoretical \u00a0politicians and their dogmatic followers wished to create. \u00a0Be careful what you wish for might be the message to the very many politicians have been caught up with this neoliberal mantra.<\/p>\n

Second, \u00a0the outcome is one that economists had not foreseen because none of those who worked on the creation of this idea of the reformed supply-side of the labour market had ever considered the impact of inequality on the outcome that they were seeking to create. \u00a0It had not, and still does not, \u00a0occur to them that inequality is a factor in economic well-being, and that increases in it have significant impact upon society.<\/p>\n

Thirdly, and again, those economists who prescribe this outcome did not presume that the consequence would be the supplier the massive subsidy to business requiring either the governments run deficits to fund a social security system or that taxation be increased on those in higher paid work to \u00a0effectively reallocate labour reward to capital \u00a0through this process. \u00a0That is because those who promote such ideas (and \u00a0two of them had an article in the Financial Times this weekend<\/a>) \u00a0do not only argue the lower wages, they also argue for lower education ( extraordinarily) \u00a0and at the same time assume that there will be no benefits to support those on such low wages so that people will have no choice but take them. \u00a0These are all entirely repugnant assumptions \u00a0in modern society.<\/p>\n

So, \u00a0what is the answer? \u00a0In my opinion we \u00a0have simply got the definition of productivity wrong. \u00a0In the 21st-century, when at long last most people realise that we are living in a world of decidedly finite resources that we have to preserve to the maximum possible degree if we want to protect the interests of future generations \u00a0than any economic relationship that is indifferent, with the exception of monetary \u00a0reward, to the relationship between labour usage and capital, \u00a0including natural resources \u00a0has to be fundamentally flawed. In that case a \u00a0new relationship has to be defined.<\/p>\n

The first assumption in that new relationship is that because labour \u00a0is a renewable, but at the same time instantly depleted resource ( because if we do not use it in the present it is gone forever), \u00a0then it must be the variable whose use is maximised in the production process. \u00a0We have an absolute duty to offer work to all those who want it to the limit of their reasonable availability, but no more: \u00a0it is of course a wholly false assumption that all our well-being is dependent upon our economic consumption.<\/p>\n

Second, \u00a0the idea that capital is homogenous is absurd: \u00a0it is not. \u00a0Some capital very clearly enhances human well-being almost without limit. \u00a0This is, in effect, intellectual property, \u00a0which is one of the reasons why I have so many difficulties with \u00a0artificial restrictions on its use when so much should be, and is, in fact created by and for the benefit of populations by the governments which represent them but which is restricted in use because of the commercial nuance applied to it in the last stage of development. \u00a0We do, very clearly, need to invest in this intellectual capital which will, when properly focused, release the requirement to use the natural resources which have, for so long, \u00a0been considered core to the \u00a0definition of capital but to \u00a0which however, no return can, as a matter of definition, ever be paid and which as a consequence create the wholly destructive concept of rents within society and economies, and\u00a0which in turn contribute enormously to imbalances created by inequality.<\/p>\n

It is only when we rebuild concepts of productivity so that \u00a0return to labour, and not capital, are the focus \u00a0and when the objective is to minimise the input of nonrenewable capital ( with a resulting minimisation in rents to be paid) \u00a0with as much of the intellectual property required to deliver this process being made as freely available as possible \u00a0that we will actually get definitions of productivity right. Until we do \u00a0conventional economists will remain confused.<\/p>\n","protected":false},"excerpt":{"rendered":"

Larry Elliott has a piece on the UK’s productivity in the Guardian this morning and whilst Larry and I may both be members of the
 Read the full article…<\/em><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[141,35,74,1],"tags":[],"class_list":["post-25741","post","type-post","status-publish","format-standard","hentry","category-courageous-state","category-economics","category-green-new-deal","category-uncategorized"],"_links":{"self":[{"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/posts\/25741","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/comments?post=25741"}],"version-history":[{"count":0,"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/posts\/25741\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/media?parent=25741"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/categories?post=25741"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/tags?post=25741"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}