We’re at the “Oh, but it’s good that it happens” stage now
From the Resolution Foundation:
The UK is poised for a rise in unemployment in 2026 fuelled by the collapse of “zombie” companies that have struggled to adapt to a rise in business costs, according to a report.
At the start of what could be a pivotal year for the economy, the Resolution Foundation said businesses were grappling with a “triple whammy” of multiyear increases in interest rates, energy prices and the minimum wage that could “finish off” some underperforming companies.
You might recall a few economic realists claiming that a rising minimum wage will increase unemployment. Say, you know, us? We were then all told that, no silly, there’s monopsony and therefore it will be companies raising wages and the b’stard capitalists getting less. Ha ha, how could anyone think that increasing the price of labour could lead to lower demand for labour?
As we all know claims move through that progression, it won’t happen, well maybe a bit and then we end up at sure, and it’s good that it is happening.
Weak productivity growth is the main reason that incomes have risen so slowly since the financial crisis. A key driver of productivity growth is ‘creative destruction’, whereby newer and better firms, products or processes replace older, less-efficient, ones. One way to measure how much this is happening is by how many jobs are created by new, growing firms, and how many are destroyed by old, shrinking ones. In fact, this sort of reallocation of labour has been slowing for much of the 21st century, in the UK and elsewhere, for reasons that are not fully understood.
But last year there were signs of a turnaround. In particular, the share of jobs destroyed by firms that are closing increased to the highest level since 2011, as did the number of firms becoming insolvent. The share of employment that moved between sectors has also started to increase. Our hunch is that the triple whammy of multi-year increases in interest rates, energy prices and the minimum wage is finally beginning to finish off some of the low-productivity ‘zombie’ firms that managed to stay afloat in the 2010s, and this is forcing a reallocation of employment across firms and sectors.
D’ye see? It’s good, good we tell’ee, that companies are being driven out of business, workers being thrown into unemployment, by that rising minimum wage.
We’re at that third stage now, the justification. Pity we were given the untruth first, eh, that it wouldn’t happen at all? But then that’s politics for us.
Tim Worstall