In a parallel universe, Rick got tired of worrying about the world of work and opened a sandwich shop in a little market town somewhere in rural England. He thought about calling it “CamberRick Green” but his prospective clientele are a bit young to get the reference so he settled on calling it simply “Rick’s” and once he seemed to making a go of it I followed his lead and opened one myself just down the road. As he had built up a decent reputation I called mine “Mick’s” in the hope of benefitting from any confusion between us.
Demand for sandwiches is growing seasonally, but there’s little spare capacity in the local labour market and no one else willing to work for Rick’s rather stingy wage. That’s stopping him growing his business. The ‘Vacancies — £ competitive’ sign has hung in Rick’s window for some time. However one day a young lady comes in — she’s from Poland and visiting her brother doing seasonal work at a farm down the road. She’d like to stay longer in the UK but her holiday money’s run out and she noticed the yellowing sign. Because she seems quite keen Rick takes a chance and offers her work at minimum wage. As she’s only 22 he’s getting a new worker pretty cheap. She quickly picks up the work and is soon exceeding his existing workers for sandwiches made. This increases his productivity as Rick will have increased sales more than hours worked, and also increases his profit.
That looks like a good thing for the economy and a win-win all round. However, the guys on the farm are a fair part of the passing trade, and at the end of the season some of them go back home and demand drops off. However, as Rick’s average costs are lower than before, he can afford to cut his prices to give him an edge over Mick’s. This keeps his volume up but the lower value of sales drops productivity, maybe to even less than it was before he took on the low-waged staff member, but still allows Rick to make the same profit as before he hired her.
I have to try to match Rick’s prices, so I’ve stopped allowing those extra ten minutes on a break, or short-notice child-care emergencies, and started asking for fit notes for absence, etc etc. One mum who works for me finds this all a bit too difficult as she’s not actually getting much in her pocket from working for me even above minimum wage because the tax credits taper rate means she loses half her earnings in reduced benefits anyway. So she gives work up as a bad job. Fortunately, one of the guys from the farm has coupled up with Rick’s new lady and so wants to stay here even though work has ended at the farm. He doesn’t mind making sandwiches and will work for minimum wage too. So I take him on at Mick’s and because I’ve reduced my employment costs, I can reduce my prices as well, restoring my competitive position and profit, but I now have lower productivity than before, just as Rick does.
Things are going to turn a bit slack as autumn approaches so productivity will decline further and so will profit for both of us, unless we shorten our workers’ hours or something. That ‘something’ could be a new competitive edge (as that’s what Rick’s good at) and he gets a jump on me by planning to offer hot soups at low prices to draw customers away from Mick’s as the weather gets colder and maintain his sales at my expense. But this will only be a go-er if he can keep the cost of production down so he asks his staff if they have any friends interested. His Polish lady calls up her younger sister in Poland. She hasn’t fancied coming over to do agricultural work, but the opportunity for something indoors sounds attractive, and she can stay at her sister’s to keep costs down. Rick won’t be able to charge as much for soup as a sandwich, so his productivity will fall again, but again as he takes my customers his profit increases.
I hear about this (as it’s a very small town) and feel that Mick’s need to offer the same range, because even if only one person in a group getting lunch together wants soup then they all go to Rick’s. So I plan to divert one of my staff from sandwich-making to soup-making to hold on to my customer share, but just as for Rick, my productivity will go down as some people will substitute the cheaper soup for the more expensive sandwich, although at least my profits should stabilise.
Now Rick and I can ding-dong away like this eternally, eking out between us the money available in the town for lunchtime snackage. We’re part of Andy Haldane’s long tail of businesses just about getting by and probably the kind of business labelled as suffering from ‘poor management’ by people like John Van Reenen from his post-Brexit professorial post at Harvard.
So we sell out to a large corporate who obviously closes one of the shops down and instead of Rick’s and Mick’s there’s just …. Greggs.