Globalisation has helped corporate profits in recent decades. It has also created lots of cheap labour. What is the impact of this? In this post I explore what it means to us all:
Globalisation is the increasing interaction of people, states, or countries through the growth of the international flow of money, ideas, and culture. It is primarily an economic process of integration that has social and cultural aspects. It involves goods and services, and the economic resources of capital, technology, data and labour.
It is this labour which is often seen as an alternative to productivity enhancing capital spending. It also puts pressure keeping wages low. So it was interesting to read a Manpower report [pdf] which suggests the living wage will send shock waves through the labour market. Not only that but it will impact job creation with three-quarters of a million positions at risk.
The upshot of this is that prices will rise; businesses will close; care homes will shut. In summary: doom will befall the UK. But, the truth is that we don’t know what the actual impact of the living wage will be. Never before has such a big increase in the national wage occurred.
What I do know is that the existing system isn’t working.
Around six million people will enjoy the benefits of the new rule, which makes £7.20 the hourly minimum for all workers aged over 25. Will it be harmful to firms in low-wage sectors? Taking Whitbread as an example. As the owner of Coast Coffee and Premier Inn it has said the change will have an annual cost of upwards of £20m a year. And the majority of this will be borne by its customers.
Many advancing economies have reacted to stagnating earnings by force feeding their citizens debt. This helps to create the illusion of rising living standards. As we’ve learned this isn’t all that sustainable. Imposing a living wage is not a risk-free solution. It could halt Britain’s job miracle in its tracks.
Does the alternative of a low-wage, low-investment economy looks more appetising? Unless it boosts productivity as well as wages, it will, in an important sense, have failed – and made Britain less competitive.
What do you think? Leave a comment below: