David Cameron has praised the announcement by Asda that it will be creating approximately five thousand new jobs, as part of an expansion drive this year. The plans involve the opening of twenty-five new stores, three new depots and the refurbishment of existing stores. The supermarket also announced that it would be allowing some of the new staff to work as part of City and Guilds apprenticeships. According to Asda, half of its new employees in last year were young people, with a large number coming through the Job Centre.
Of course, all of the above sounds brilliant at face value. It’s understandable why David Cameron is pleased by this; since his government came to power, their mantra has been to cull the public sector in the belief that the private sector would expand and create jobs. It’s unsurprising that every time a private corporation creates a significant amount of jobs, he feels vindicated. The problem with that is it leads to a lack of questioning. When people believe they have been proved right, they don’t stop to ask whether that’s really the case. Cameron, desperate to see growth in the private sector to prove him right, doesn’t stop to question the details when jobs are created.
Let’s examine the details first. I’m a great believer in apprenticeships and work-based learning. I think learning theory and practice side-by-side is an excellent opportunity to develop comprehensive skills. I’m sceptical however, of Asda’s motivation for getting involved with apprenticeships. I have to question whether this is motivated by a desire to train young people and help them progress in their career, or simply down to the fact that the minimum wage for apprentices is a mere £2.70 per hour. I have to question the value that the menial work at Asda contributes to personal development, compared to trades such as plumbing where there are genuine skills to be learned. With those two factors combined, I have to wonder whether taking on apprentices is an act of good will by Asda, or a source of cheap labour. Of course, Asda may choose to pay its apprentices the same as its regular workers — we shall see. Another thing to bear in mind is that even given the premise of these skills being taught to help employees get jobs in the future, unemployment in this country isn’t currently caused by a lack of workforce skills, it’s caused by a lack of jobs. That means that you can’t just train up the workforce to get them all back in jobs. There are a set number of jobs and although training is never a bad thing, it will only determine one person getting a job over another; the total unemployment level will not fall because the cause of unemployment is not untrained workers.
The idea that half of Asda’s hires were young people also looks excellent on paper. Youth unemployment is at its highest for a long time. One thing to bear in mind immediately however, is that just because youth unemployment is higher, doesn’t mean that on a per-person basis, it is more socially valuable to employ a young person than an older person. That’s a statistical fallacy. There is the argument that it’s important to hire and give experience to young people, but that falls foul of the same trap as apprenticeships — skill level is not currently the bottleneck on total employment. There’s a big motivator however, for Asda to hire young people. One of the areas of gross unfairness and discrimination in the current system is the minimum wage. For some reason, the government believes that young people, even if they live on their own or have their own family, don’t need as much money to survive as older people. The minimum wage for an adult of 18 is over a pound an hour lower than the minimum wage for an adult of 22. The fact that something as unacceptable as this is enshrined in law is a matter for another time, but the fact is that employers are well aware of this. Now consider again, Asda’s motivation for hiring young people.
Everything considered so far is important, but a side show compared to the key issue here, which is intrinsic to the creation of jobs. How is it that Asda is able to create jobs? It sounds like a simple question, with an easy answer: Asda builds more stores and hires people to work in them. If things were that easy though, then why don’t the major supermarkets keep opening stores until the entire surface area of the country has been consumed? The fact is that while Asda may do the “job creating” it only does so when it believes it can make more money. Of course, we knew their motivation was making more money; few people really believe that businesses create jobs out of kindness. It goes beyond this however, when we consider that, knowing supermarkets will expand as long as they can make money doing so, their expansion must be controlled by potential sales, which itself is controlled by demand. In other words, the limiting factor on job creation is not the skill or willingness of the entrepreneur, it is the free demand in the market. Simply, it is demand that creates jobs.
Consider for a moment what this means for the market as a whole. If demand creates jobs and there is a lack of jobs, then it yeilds that there is a lack of demand. A lack of demand can be attributed to a lack of spending power among consumers. Unemployed workers spend less as consumers, lowering demand. The problem is circular. There’s one thing left to consider, however: the ratio between demand and employment. When demand creates jobs, it creates enough jobs to meet that demand. This is not a constant. We know that with the technology available today and the efficiencies of large-scale enterprise, we can produce more, with less actual labour power, than at any time before. We know that if a large amount of demand is being met, companies are taking in large amounts of money. We know that if labour efficiency is high, relatively few worker salaries will be coming out of that amount. What this all predicts is that in a time of high labour efficiency, two things will increase: the wealth of company owners and the unemployment rate of workers.
Now, let’s go back to Asda. Asda is a massive company that runs its labour force as cheaply as possible. We know that if they’re hiring, they’re doing so to meet a demand they know exists, or that they can make exist. Now, short of improvements in the entire economy, beyond what we’re seeing now, there are two sources of demand: increase of customer base, or decrease of supply elsewhere. We don’t have to consider the whole market growing other than with population growth, because the supermarket market covers nearly 100% of the population anyway. We can make a deduction for either scenario.
If the growth is due to the increasing population, that means that yes, there will be more demand. Of course, it takes far less than one person to meet one person’s worth of demand. In other words, the percentage of unemployment will not change.
The second scenario is that the increase of demand is due to a market share gained, or to be gained, from a competitor. At best, this means Asda expanding to fill the gap left by Tesco’s bad year. In this event, an equal number of jobs will be lost at Tesco and the other supermarkets to compensate. At worst, this means Asda moving into new areas, undercutting local stores and driving those stores out of business. Again, jobs are lost there. The worst thing about that is that the company expanding is one with a very high labour efficiency — it pays its workers a minimal amount and most of the profit flows upwards. Smaller, less efficient local stores are actually better for the economy because they generally don’t run as efficiently. It sounds crazy, until you consider the problem, that efficiency in Capitalism is actually the efficiency with which wealth is moved from workers to owners. Efficiency in business is taking the most net profit, and where the bottom line is concerned, workers are a cost. It is precisely because companies have such great efficiency now — because they are able to meet such a large amount of demand per unit of man power, serving many customers with fewer employees — that we have the situation that we do: a crisis of production, with the rich getting richer and massive unemployment.
Asda’s expansion doesn’t come for free. The cost in jobs will be met elsewhere and if it’s smaller business they’re undercutting, the increased efficiency will hurt the working class in the long run.
Update: Interesting article in the Telegraph on the Asda topic, with a nice quote from the Association of Convenience Stores:
And they do not take into account any job losses caused elsewhere. Our members find that when a big, powerful competitor opens they might not shut down, but they are forced to cut costs, including staff numbers and man hours.