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Ian Brinkley
Economic Advisor
Ian Brinkley

Retail jobs, the living wage and technology

Authors: Ian Brinkley

29 February 2016

The British Retail Consortium (BRC) has recently published the startling prediction that nearly 1 million employee jobs will go from retailing over the next ten years, representing about 30 per cent of employee employment. This would  be an unprecedented change for a major service industry, either in the UK or across the OECD and will be seen by some as a stark warning about the future of work. In this blog I look in more detail at how credible such a dramatic prediction might be.

By and large, most other recent predictions have seen overall employment remaining fairly flat in retailing, in contrast to previous decades when it was a major driver of job growth. The UKCES Working Futures report published in 2012i noted the potential of new technologies and rising demand for on-line services to reduce employment, but concluded it was unlikely to be significant.

Recent trends are consistent with this view. Between September 2010 and September 2015 overall employee employment in wholesale and retail went up by about 120,000, with the trend in retail essentially flat. So what is going to change to cause the sort of restructuring envisaged by the BRC?

The rapid rise in the National Minimum Wage is clearly a key factor – by making labour more expensive, there is a greater incentive for employers to increase productivity by replacing labour with new technology. Even if only half the jobs predicted to be lost by the BRC can be attributed directly to the NMW, the Office for Budget Responsibility’s forecast of 60,000 lost across the whole economy is starting to look very optimistic.

There is no way at the moment to say for sure which of these predictions is right. The BRC forecast however seems to be based on the assumptions that all jobs that might be replaced by new technologies will be. This requires more faith in forecasts of big net job losses caused by technological displacement in services than experience suggests is warrantedii .

Moreover, it assumes employers are likely to respond in only one way, whereas it is more plausible that they will adopt several different strategies, including offering lower wage rises to the workforce paid above the NMW, reducing the generosity of some non-wage benefits, and increasing the share of younger workers under 25 who are not covered by the increase.

Other arguments look more dubious. The BRC highlights the rise in business rates, a common concern across many UK businesses. However, the unspoken deal with big business at the time of the Chancellor’s 2015 announcement was that the rise in the NMW would be offset by business tax cuts. So the BRC would need to demonstrate that the overall business tax burden has gone up significantly across the retail sector and not just one business tax.

Moreover, the link between business rates and employment has always been ambiguous, because in principle a rise in rates should be offset over time by falls in rent in a competitive property market. To the extent that Britain’s dysfunctional markets do not allow this to happen, then the BRC has a genuine point. Some academic work has suggested that planning restrictions may impose costs on UK retailers and reduce the scope for productivity growthiii. But these problems have been with us for a long time, and it is not clear why they should trigger such a big change in employment structures over the next decade.

Overall, my view is that the BRC forecast is just about plausible, but is at the extreme end of likely job losses in shop-based retailing over the next decade.  My guess is that we will see a steady but much more modest decline in shop-based employment over time, with some off-setting growth in jobs in associated services in the on-line and on-demand economies.

It has been the norm in the labour markets of the advanced industrialised countries for large numbers of jobs to be lost to new technology each year and for even more new jobs to be created through the growth of new markets, products and servicesiv .  There is no reason to think that this will not be the norm over the next decade. The challenge, which will become greater over time, is to how to make sure we give current and future workforces the skills that complement the new technologies and develop jobs in ways that make good use of the skills the workforce already has.