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The door of Number 10, Downing Street

The government’s move towards an economy with high-skill, high-wage and high productivity will likely cause economic disruptions and job losses if the government is not preparing and organising the transition.

The Prime Minister’s new economic vision looks to replace mass immigration with higher wages and better working conditions to encourage people into key sectors with the aim of moving the British economy "towards a high-wage, high-skill, high-productivity economy", in which "everyone can take pride in their work and the quality of their work".

The research

Bernd Brandl, Professor in Management at the Business School, examined the consequences of the government’s transition on the economy, businesses and workers. He looked at how and why countries operate with different models to qualify workers, and the effects of collective wage bargaining on wages, working standards, skills and productivity in different countries.

The research shows that the transition process from a low-wage, low-skill, and low-productivity economy to a high-wage, high-skill, high-productivity economy can be expected to be very time-consuming, costly and even cause some substantial damage if not prepared and organised well.

In the short-term, many existing companies will not be able to afford higher wages and may go bust, there will be job losses and industrial conflict if the government is not organising the change. However, in the longer term the new economic vision of the government could be highly beneficial for businesses and workers, as the economy may benefit because more productive, skill-driven and innovative companies would be advantaged and be able to succeed in the market.

This move is bold for the government, since voters in the next election might go to the ballots because of the short-term pain they already see, instead of considering the long-term gains.

The transition

The transition will not be as easy as it looks. Without careful management and planning, including policies to support business and workers, it will cause painful disruptions in the years or even decades to come for many businesses.

This will be costly for the government due to the need to invest in infrastructure and training facilities as many British businesses have been running on a low-wage, low-skill, low-productivity business model, due to two main reasons:

  • in the past decades there was a constant influx of migrant workers who were willing to accept low(er) wages.
  • apart from the minimum wage, there was almost nothing in place that prevented companies from keeping wages low.

Through this, many businesses competed with each other by keeping wages and working conditions low, and they had little incentives to invest in skills of their employees in order to gain a competitive advantage.

Making the transition work

To accelerate and facilitate the transition, the government should manage and coordinate the transition process with representatives from employers and employees.

There are four key elements needed to make the transition work.

  • patience, the transition could take years for some sectors, and even decades for others, it’s not a quick change.
  • the transition is costly, and the government must be prepared to invest in infrastructure and training facilities.
  • the transition process may be painful for many business and workers, as there could be job losses and social disruptions in the years ahead due to companies going bust.
  • Careful preparation, organisation, and management of the transition process. This process should include everyone who is affected. The UK can learn from other countries how the involvement of businesses and trade unions in the process can be successful, as it reduces conflicts and helps cushioning the short-term consequences of economic and social disruptions. 

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