Intergenerational fairness, the Middle Ages and immigration

Angus Hanton foresees a scarcity value for future labour, but other forces could undermine its potential for improving the fortunes of the young in the workplace

History and demography usually have lessons to teach us about the present day. The current demographic pressure in Britain is from an ageing population as a result of low birth-rates and increased longevity. This suggests that there will at some point be a shortage of working-age people to drive the economy.

It is ironic, therefore, that there are now actually about a million young people who cannot get work – the youth unemployment rate at 20% is over three times that of the over 25s.

Scarcity value

In the longer term, demographics should make things better for younger people as the main thing they can offer – labour – becomes relatively more scarce. This should also allow younger workers, as a group, to increase their earning power, so the value of their labour should rise relative to the value of capital. History may be on their side….

There are historical precedents for a shortage of labour leading to both an increase in its market value (i.e. pay) and a plentiful supply of jobs. One of the most striking cases of increased demand for labour in England was the period that followed the “Black Death” in 1348 to 1350. As much as half of the English population perished, and in continental Europe the population suffered a 30–40% fall. This was not a local phenomenon: it is thought that the deaths in Europe reduced the world population from about 450 million to as low as 350 million.

In England the drop in the number of workers drove wage rates up and also meant that housing became both more available and cheaper. The landowning classes were very unhappy about the rise in labour costs and tried hard to keep these down by using punitive measures and laws, such as the Statue of Labourers in 1351 – but this had limited impact against such a strong market force: labour rates rose sharply to a level which was not exceeded for 400 years.

Following this devastating plague, there was the danger of a break-down in the traditional structures but order was maintained, at least in England (France suffered a degree of anarchy as a result of the Black Death). In both countries the plague prevented any new wars for several years, but it is generally thought to have contributed to social unrest and demands for change – for example, over the next 50 years England saw the progressive ending of serfdom.

New competition

While the Black Death of the 14th century led to an increase in wages and employment opportunities, it also brought about a reduction in the average age of the population.

In the UK today, the average age is increasing and there is a reduced proportion of working-age adults: theoretically, this should also lead to a tightening of the labour market and a rise in labour rates. There should be both continuing demand for workers in the general economy and extra need for labour in the caring professions and for looking after the older retired population. In theory this should be good for young people seeking work, and it should also help older people who are choosing to work in their retirement.

However, when thinking about the likely impact of longevity on the UK labour market, there are two new factors which had only a small impact in the Middle Ages: automation and immigration.

Automation will, in principle, allow more jobs to be done by machine, so more work can be done by the same number of people. In terms of providing caring services this could be electronics-driven (robots), while in the general economy it could simply be the use of machinery to replace labour wherever possible.

In wealthy countries where there are labour shortages it is easy to see machinery and automation being more widely employed – for example in Switzerland the majority of petrol pumps are totally unmanned and few lorries are off-loaded by hand.

The other approach to meeting increasing demand for labour is to encourage immigration, which is now an important new source of labour, particularly in the caring and medical professions. The demographic trends suggest that there may be a powerful push from government for allowing more immigration both to keep down labour rates and to help serve the increasing needs of the elderly population.

Posted on: 15 November, 2011