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Retailers accused of distorting lorry driver market through massive wage increases


Haulage groups have accused supermarkets of distorting the lorry driver market through offering temporary bonuses and large premiums, the Financial Times reports.


Supermarkets, desperate to prevent shortages on shelves, have offered large pay rises and one-off bonuses to incentivise lorry drivers to leave agencies and work for grocers.


Waitrose, Tesco and Asda have all offered sign-up bonuses of over £1000 and Gist, a logistics supplier to Tesco, M&S, Aldi, Morrisons and Ocado are offering an annual pay of up to £56,674, a £5000 sign-up bonus and a retention bonus.


The laws of supply and demand dictate that a shortage in lorry drivers (a result of a combination of factors including Covid, Brexit and an aging workforce) will lead to a higher wage rate to ration the scarcer supply of drivers. In theory, when wages are bid up due to a shortage, only those firms with a willingness and ability to pay the higher wage rate remain.


It is hoped that a higher wage rate will attract workers from other professions to consider retraining as lorry drivers or to encourage the 55,000 domestic drivers who left the industry in the last 18 months to become economically active again and re-join the workforce.


However, given that the supply of lorry drivers is relatively wage inelastic (due to the level of training needed, the time taken to qualify), it is unlikely that a higher wage rate will lead to a significant increase in people, particularly the young, joining the industry. Wages are only one factor taken into consideration when individuals choose whether or not to work in a profession.


In addition, the Financial Times reports that a chief executive of a haulage company has criticised the actions of supermarkets as useless in ameliorating the situation over the long term as ‘’All [they] are doing is circulating the existing workforce’’.


The impact of higher wages, rather than increasing the size of the domestic labour force, is likely to be inflationary, with some supermarkets raising wages significantly beyond the current rate of inflation (expected to peak at 4% by the end of the year). This, in theory, should feed through to both higher cost-push (as costs of production for firms rises) and demand-pull (as higher wages increase marginal propensity to consume) inflation.


A higher wage rate is likely to be passed on to consumers via higher prices as demand for groceries is inelastic. This, combined with the £20 cut in universal credit, future NI increases and higher energy bills has sparked fears for the living standards of those on the lowest incomes in society. As their disposable incomes decline, they will face trade offs between necessities including spending on food or spending on heating.


To try to ensure that there is an actual increase in the number of lorry drivers working in the UK, the Government announced last week that they would introduce a temporary visa scheme providing 10,500 visas (lasting until Christmas Eve) to help abate supply pressures created by a shortage of drivers. This announcement has been amended to extend by 2 months around 4,700 visas intended for foreign food haulage drivers, lasting from the end of October to the end of February. In addition, the 5,500 visas to be given to foreign poultry workers have been extended to New Years’ Eve, given worries that there may be a shortage of turkeys for Christmas. However, it is thought that the scheme is unlikely to tackle the core problems of poor working conditions, a lack of social prestige associated with the job and significant underinvestment in domestic labour by UK firms. Until these are resolved, the shortage is unlikely to subside in the long-run.

 

Written by Deandra Peiris

Research compiled by Steven Li




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