At £10 an hour for kitchen porters, £1,000 on the spot for chefs who sign up and £2,000 in referral bonuses for existing staff, working in the hospitality industry has rarely been so lucrative. Then again, for pubs, restaurants and hotels that are having to increase their pay as they struggle to hire back staff shed or furloughed during lockdown, being an employer in the sector has rarely been as expensive.
The reasons for the staff shortage are a matter of debate. Some factors are clear, though, including European Union workers leaving Britain during the pandemic and not returning. While it is not known precisely how many workers have left this year, estimates run into the hundreds of thousands.
Official figures suggest that the number of people in payrolled jobs slumped by 7.4 per cent last year and many of them will have worked in low-wage services sector jobs or in construction. In a recent survey, Indeed, the jobs website, found that searches from EU-based workers were down by 36 per cent compared with 2019 and by 45 per cent since the Brexit vote in 2016.
Low-paid sectors, such as cleaning, social care, food and hospitality and loading and stocking were at the sharp end of the decline. These are among the sectors that are facing the most acute shortages and are increasing wages the fastest.
During the Brexit referendum campaign in 2016, pro-Leave supporters claimed that voting to leave the EU would lead to wages rising in the hospitality industry and other sectors because the labour pool would shrink and pubs and restaurants would not be able to pay cheap wages to migrant workers.
At the time, many economists dismissed such claims. They argued that rises in the minimum wage offset the impact of EU migration and that the legacy of the financial crisis had a bigger role to play in holding back wage growth in low-skilled jobs.
The post-Covid rise in wages could be seen as evidence that the Brexiteers were right and the economists were wrong, but a complex mix of Covid-driven factors also appear to be at play — and they may not last.
Hospitality, construction, retail and logistics are rushing to hire staff as Covid-19 restrictions are lifted. Businesses are having to repair their workforces at speed and in conflict with other sectors that are vying for a similar type of worker. That is creating spikes in demand and bottlenecks.
Many businesses in lower-paid sectors were quick to shed workers during the pandemic and had assumed that they would be able to pick from a large number of unemployed people when needed; instead, the pool of suitable labour seems to be evaporating.
Some workers put on furlough have moved on to other careers with more secure hours and contracts, or are trying to set up their own business. Tony Wilson, director at the Institute of Employment Studies, said that there was a clear difference in the fortunes of those businesses that kept in contact with their workers while they were on furlough and those that did not. The latter are finding that their furloughed workers have reassessed their careers and have moved on.
The labour shortage is already forcing businesses to raise pay and working conditions, but it may not last. The acute shortage is likely to ease as spending patterns slowly return to normal. In addition, the end of furlough could unlock a few million workers who are still drawing on the scheme but will find themselves unemployed by September.
It is not clear, either, to what extent higher wages will lift living standards if inflation runs rampant in the economy. Kay Neufeld, at the Centre for Economic and Business Research, said: “If you’re working at the moment in the hospitality sector, you have an increased bargaining power and you can probably negotiate higher wages. In the long term, if that leads to higher consumer prices inflation, at least a part of that increase in wages will be eroded through the higher cost of living. So you win some, you lose some.”
Businesses also may decide to invest more in their operations to make them more efficient and less reliant on expensive workers. The industry has made innovations such as apps for table service.If that boosts productivity, it is not clear yet where that leaves workers.
For decades, Britain’s productivity has been held back by the proliferation of low-wage jobs in customer-facing roles, in no small part because businesses have been able to rely on cheap migrant labour. According to Andy Haldane, chief economist at the Bank of England, structural changes brought about by the pandemic and Brexit could force businesses to invest in their operations and to train their existing workforces, which could boost productivity.
“The flow of migrant labour, certainly from the EU, has dried up,” he told The Spectator this week. “The past has been one in which we relied on an expanding workforce and low productivity. We have switched to an equilibrium of a contracting workforce but with expanding productivity. The skilling-up incentives will increase in a way that could be good for the productivity of those workers.”