9 March 2017

What’s wrong with giving the sandwichmakers a raise?


Another day, another penny drops about the effects of Brexit. It seems it could cause low-end wages in Britain to rise. And we can’t have that, can we?

Today’s outbreak of indignation over this comes courtesy of Pret A Manger. Their HR boss, Andrea Wareham, told the House of Lords Economic Affairs Committee than hardly any Brits ever wanted to work in the sandwich chain. Instead, they had to hire from some 110 nationalities, 65 per cent of them from the EU. Brexit would cut off access to that source of labour.

Ms Wareham also told us all that she could not fill her vacancies if she were only to hire Brits. She added: “I actually don’t think increasing pay would do the trick.”

Her statement is news to every single economist on the planet – for the supply and demand shtick they’re all so keen on does actually work. If we have a shortage of something, a greater demand than supply, then increasing the price will call forth that greater supply, while also dampening demand for that now more scarce thing.

My Lord Rose did warn us of the likelihood of this dreadful occurrence when he was involved with the Remain campaign. His statement that a British exit would lead to restrictions on EU migrants and “the price of labour will, frankly, go up” is what got him sidelined from that campaign.

In theory, it’s not a given that such wage rises would take place. Yes, immigrants bring their labour which competes with and thus lowers the price of our own workforce. But, then, immigrants also bring their demand for goods and services which increases the demand for the labour of both immigrants and indigenes, which leads to it being a little difficult to work out the net effect. Most economists would say near to none, in fact.

But, then, what do economists know? They didn’t predict the crash, after all. So let’s just go with the intuitions of those who hire labour – Brexit will lead to low-end wages rising in Britain.

So remind me. Why is it such a ghastly thing if workers’ wages increase? Isn’t this pretty much the point of having an economy in the first place – so that the life of the average sandwich maker on the Streatham omnibus gets better? And – as the Resolution Foundation inadvertently points out with their suggestion that wage growth is about to be the worst it’s been since the Napoleonic years – we’ve been doing this successfully since 1750.

So if Brexit is going to make wages rise, then I think we should probably get on with it.

Tim Worstall is senior fellow at the Adam Smith Institute