The baristas at Costa Coffee are getting a 5pc pay rise. At Wincanton, the largest UK logistics firm, some drivers are seeing their pay bumped up by almost 30pc. At building sites, restaurant chains, factories and warehouses, blue-collar pay packets are rising at an unprecedented rate.
We can all debate the reasons for it, from Brexit to the pandemic and demographic changes that are just starting to play out. But there is a more interesting question. How is it going to affect the economy?
After all, we have not been in this situation for a long time. Blue-collar wages have stagnated over the last 20 years, even as professional earnings have grown. In reality, it will lead to four big trends. We will see a boom in consumer spending; an increase in home ownership; a decline in university education; and the rise of the labour-lite corporation. It will take a few years, but at the end of it the economy will look very different.
When Costa announced a 5pc pay rise for its staff last week, it was relatively modest by current standards, and may not be enough to keep all the coffee machines whirring. As the economy reopened, it became clear that labour shortages were driving up wages right across the country.
In the summer, wages were rising at an annualised rate of 8pc . It wasn't hard to work out why. Ending freedom of movement as we left the EU has meant the supply of Eastern European workers has been turned off. The furlough scheme has kept millions idle while jobs are available elsewhere.
And perhaps just as significantly, 16 to 25-year-olds are not working at the same rate they used to (the participation rate has dropped by a full percentage point over the last two years) and neither are over-55s. The pandemic will end eventually, but we won't see the migrant workforce return on the same scale and demographics won't change either. Rising blue-collar wages will be with us for some time to come.
So how will that impact the economy? Here are four trends to watch for.
First, expect a consumer boom. When all those pay rises start hitting people's bank accounts, we should expect people to spend, spend and spend again. At the lower end of the earning scale, people spend a lot more of any increase in disposable income (in the economics textbooks that is known as a higher marginal propensity to consume).
Someone making £25,000 can probably think of a heck of a lot of things he or she would like to buy but hasn't been able to afford. Someone on £80,000? Less so. The rise in wages will feed through into spending far more rapidly than the same money among white-collar workers, and all that extra higher spending will boost retailing, leisure and travel very quickly.
Next, expect to finally see a rise in home ownership again. Over the last decade, the percentage of people who owned their own home steadily fell from a peak of 73pc to just 63pc. The people who had the most trouble getting on to the property ladder were not just the young (who, funnily enough, often get older) but semi-skilled, blue-collar workers.
With stagnant wages, and escalating housing prices , it was harder and harder for them to build up a deposit and a mortgage of three or four times their earnings didn't go very far. If real wages are up 30pc, and you multiply that by four, suddenly there is a lot more money to play with. Overall, houses will become more affordable, especially the new-builds going up around the country. Most of us want to own the place where we live – and if we can afford it we will buy.
Thirdly, expect a decline in university education. As blue-collar wages stagnated, and white-collar jobs boomed, a degree was essential. No one wants to get stuck in a dead job where they are always competing with a new migrant from Portugal or Bulgaria ready to work for less money. It was miserable.
With universities expanding like crazy, it was hardly a surprise that everyone rushed for the safety of professional work. There are 1.2 million students doing first degrees in the UK, double the number in the 1990s. But hold on. Why rack up debts of £60,000 , and face a 50pc marginal tax rate once repayments kick in as soon as you start earning a decent salary, when you could be making £50,000 a year as an electrician or lorry driver? It doesn't make a lot of sense anymore. And a lot of universities may have to close or slim down as students decide a degree is not worth it.
Finally, we will see the rise of the labour-lite corporation. Over 20 years, with plenty of cheap labour around, companies couldn't be bothered to invest in automation, or greater efficiencies. They could just hire more people if they needed to. That is going to change.
The technology industry is already booming, but it will consolidate its dominance for the simple reason that an app invariably needs fewer people than a chain of physical branches. Anyone selling labour-saving devices, from warehouse robots to automated front-desk software, will boom.
On the flip side, industries that are hard to automate, such as retailing and hospitality, will struggle to survive, and will witness plenty of casualties. The efficient use of labour – and in practice that will mean as little as possible – will be the key competitive advantage for every business over the next decade.
Overall, a surge in blue-collar earnings is the best thing to happen to the economy in a long time. It was long overdue. For much of the last two decades, wages at the lower end of the scale stagnated, while the white-collar middle classes did just fine. The inequalities were both unfair and unhealthy. In the 2020s, it looks as if we will finally start to fix that. And yet, welcome as that might be, it is also going to change the economy – and in ways we have only just started to work out.
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