Deregulating the labour market: it’s not that easy

It is very difficult to deregulate the labour market. Here is a timely case in point – the continuing existence of the Agricultural Wages Board, which sets the new rates of pay for various grades of farm workers which come into force today.

You may be vaguely aware of the Wages Councils, which used to set pay rates in industries which were not strongly unionised. They had their roots in the ‘new liberalism’ of the early twentieth century. Inspired by William Beveridge’s favourable impressions of Bismarckian Germany, Winston Churchill spearheaded a programme of labour market intervention at the Board of Trade. Labour exchanges and unemployment insurance were instituted, and Trade Boards, the forerunners of Wages Councils, were set up to fix minimum wages in ‘sweated’ industries. These Liberal Party measures were supported by the Labour Party and were unopposed by the Conservatives.

The Trade Boards Act of 1909 covered just four trades: ready-made tailoring, paper box making, machine lace-making and chain-making. 200,000 employees were covered. The number of areas covered gradually rose over time: by 1970 there were 55 such boards including such curiosities as the Sack and Bag Wages Council, the Pin Hook and Eye and Snap Fastener Wages Council and the rather worrying Coffin Furniture and Cerement-Making Wages Council. The number of Councils fell back as some of the smaller industries and trades disappeared, and the remainder were abolished by John Major’s administration in 1993 – with one exception. The Agricultural Wages Board has somehow continued even after the introduction of the National Minimum Wage, which you might have thought would have destroyed any lingering rationale for this body.

Looking at the Board’s constitution is rather like the experience of opening Tutankhamun’s tomb: we see eerily preserved a much older way of doing things. Several times a year eight representatives of farmers face eight representatives of employees (i.e. unions), with five ‘independents’ and thrash out agreement on pay for six grades of workers, plus various other ancillary matters such as holidays and sick pay. Their deliberations produce a legally binding Agricultural Wages Order, which is enforced by DEFRA and comes into effect each year on 1 October.

The most recent figure I have been able to get for the cost to the taxpayer of this procedure was £170,000 in 2008-9 for England and Wales, and a further £130,000 for Scotland, which has its own Board. There is also one for Northern Ireland, so we can probably add in another £100,000 plus for that. They set rates separately, of course.

Quite what singles out agriculture from other industries and means that its pay and conditions have to be negotiated in this manner, in such detail, and given legal backing, is unclear. Agricultural work is not well-paid, but it is not the bottom of the pay league: hotels and catering workers fare worse, and they are similarly dispersed and weakly unionised – and have higher staff turnover.

Two years ago, the coalition announced that it was intending to abolish the England and Wales Board as part of its Bonfire of the Quangos. In due course the Public Bodies Act passed through Parliament, and it was intended that the Agricultural Wages Board would disappear with effect from this month. National Minimum Wage legislation would thus apply in agriculture as in all other industries.

The Board will not, however, now be abolished straightaway. During this spring, it became apparent that the consultation period required before abolition would not be completed on time and in July it was confirmed that the Board would have to continue for the time being. Thus we have today’s new Agricultural Wages Order.

Farm workers will no doubt be pleased to see that as a result of the Board’s efforts the minimum wage in their industry will be 2p more per hour than the national minimum from next week.

Quite when the England and Wales Board’s future will be settled is not clear: DEFRA’s website offers no clue. The Scottish Board, meanwhile, continues unchanged, while Northern Ireland Agriculture Minister Michelle O’Neill announced last week that, following her own consultations, she has decided to retain their Board. I would not bet huge amounts of money on England and Wales ultimately doing anything different, particularly as the Welsh Assembly has voted against abolition. No doubt there will be a get-out explanation that interested parties support retention.

Len Shackleton is an Editorial and Research Fellow at the IEA and Professor of Economics at the University of Buckingham. He was previously Dean of the Royal Docks Business School at the University of East London and prior to that was Dean of the Westminster Business School. He has also taught at Queen Mary, University of London and worked as an economist in the Civil Service. His research interests are primarily in the economics of labour markets. He has worked with many think tanks, most closely with the Institute of Economic Affairs, where he is an Economics Fellow. He edits the journal Economic Affairs, which is co-published by the IEA and the University of Buckingham.

2 thoughts on “Deregulating the labour market: it’s not that easy”

  1. Posted 01/10/2012 at 14:06 | Permalink

    I suppose it is inevitable that when a government, maybe reluctantly, comes to consider whether to abandon a specific example of intervention (which I prefer to call ‘interference’) there is a flurry of vested interests seeking to argue why that should not be done. Nigel Lawson, in his memoirs [The View From No.11′, page 201] explained that when the Thatcher government proposed privatisation of any particular nationalised industry, there was always plenty of opposition. His conclusion was the the only way for a reforming government to proceed was to just go ahead. I well remember what a hoo-ha there was about abolishing exchange controls in 1979, because after forty (sic!) years, we had all got used to them — and in our normal ‘conservative’ fashion were nervous about making a change. It is not as if there is today just a teeny bit too much government interference in the British economy, so that very protracted consideration is required before a radical reforming government boldly decides that, on balance, perhaps a modicum of reduction could be risked. With government spending at roughly 50 per cent of the national income, and many many kinds of intervention which hardly show up directly as ‘government spending’ at all, it is clear that government is FAR too large and needs to be significantly reduced. In a time of financial crisis, why are we still waiting? If not now, when?

  2. Posted 01/10/2012 at 20:42 | Permalink

    Wow, 2p.

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