Why So Many Services Are Expensive Even When Britain Has So Many Low‑Paid Workers

The left remains constantly confused about why everyday services cost so much, yet so many of the people providing them earn relatively little in comparison. To the left, this is an epidemic of ‘injustice’ in our society - but this misunderstands the economics of labour markets where, over sustained periods, average wages in an economy tend to rise with average productivity, but individual wages are determined by sector‑specific productivity, bargaining power, labour supply, and institutional factors.

It’s certainly true that, from observing many sectors - social care, transport, hospitality, cleaning, etc - while prices continue to rise, the workers delivering those services often earn wages that barely cover the basics. But it’s not injustice - it’s the predictable outcome of how a modern, unequal, service‑heavy economy like ours works.

Here’s how it works. You need to think of economic sectors as having different levels of productivity. Finance, technology, and engineering typically generate high output per worker, and therefore they pay accordingly. In fact, their wages pull up the national average, just like how two giants in a group of seven would significantly pull up the average height of the group.

But there are also low‑productivity, low‑bargaining‑power sectors - like hospitality, retail, cleaning, care work, etc - which rely heavily on human labour, but through no fault of anyone, have limited ability to raise productivity, and face intense cost pressure. Again, through no fault of anyone, wages in these sectors remain low because employers simply don’t have much room to raise them - and workers often lack the bargaining power to demand more (see my past blog posts on the economics of labour markets).

This is the reality of the “expensive services, low‑paid workers” problem. The left demands higher wages by asking “If workers in many service sectors are poorly paid, why do the services themselves cost so much?” But it’s the wrong question in terms of setting wages, because the price of a service isn’t determined by the wage of the typical worker - it’s determined by the wage of the next best alternative. The carers looking after my father in his care home had viable alternative labour options in supermarkets, delivery firms or hospitality roles with similar pay but better working conditions, which is why the care home struggled to retain enough staff.

Even if a service industry job is underpaid, it still has to compete with the rest of the labour market. If it doesn’t, workers leave - and shortages follow. Service prices reflect the cost pressures of a wealthy, high‑wage economy, and service workers’ pay reflects the realities of low‑power, low‑productivity sectors. Consequently, expensive services and low‑paid workers are not in contradiction, and there is no wholesale injustice in this tension - they are two sides of the same economic coin.

Price theory predicts uneven wage growth, weak bargaining power in many service sectors, rising labour competition, and a deep divide between high‑productivity and low‑productivity work – all of which explain the pattern sufficiently – it’s Econ 101, yet a perpetual mystery to the left.