Poverty & Social Welfare

August 3, 2020 9:54AM

Occupational Licensing Reform Moves Forward

By Michael D. Tanner and Kelly Lester

With an unemployment rate currently over 10 percent and many businesses permanently closing due to the pandemic, policymakers should make it as easy as possible for unemployed workers to find new opportunities.

State policymakers have tools at their disposal that could help put the unemployed back to work by eliminating barriers that prevent workers from moving between careers. Despite a wave of deregulation early in the COVID-19 crisis, many states still have occupational licensing requirements on the books that are hindering economic recovery by choking off access to new jobs, hindering interstate mobility for workers, and increasing costs for consumers.

The often lengthy and costly process involved in getting a license to practice hair‐​braiding, nail care and many other trades represent a significant barrier to would‐​be small business owners who cannot afford the time or expense involved. Nearly two million jobs are lost annually due to licensing requirements — a burden that falls hardest on low‐​income communities.

Despite claims by licensing proponents, studies looking at a wide variety of professions have found that the licensing process does not significantly protect public health and safety. Some research has even found that licensing has a slightly negative effect on quality. But, while quality remains unchanged, prices to consumers increase. According to economist Morris Kleiner, licensing can raise prices anywhere from 5 to 33 percent depending on the type of occupation and location. It is estimated that consumers pay, in total, $200 billion annually in extra costs due to licensing.

And forget easily moving your business from one state to another. Most states will not recognize an occupational license from another state, requiring entrepreneurs to go through the costly hassle all over again.

As a result, both the current and previous administrations have called for licensing deregulation. Licensing reform is one of the major aspects of President Trump’s Governors’ Initiative on Regulatory Innovation.

States have slowly begun to act. In signing legislation that allows his state to recognize licenses from other states, Missouri Governor Mike Parson said, “Eliminating governmental barriers to employment and allowing citizens to become licensed faster is an impactful, commonsense step that we believe will have a positive impact in the lives of a lot of Missourians.”

Arizona enacted similar reforms last year. Iowa has also created a universal licensing system with hopes of increasing migration into the state. Several more states, including California, Florida, and Missouri, have made it easier for people with criminal records to receive licenses. Florida has loosened other licensing requirements as well, as has South Dakota.

While those reforms are a good first step, all states can and should go further, reviewing all current occupational licensing requirements with an eye toward standardizing requirements, reducing costs, and eliminating restrictions that are not related to public safety.

The pandemic has created a unique window of opportunity for reform, forcing states to reevaluate the impact of regulations on jobs and poverty. States should seize on this opportunity to expand the freedom to work.

July 30, 2020 11:55AM

Trump, Zoning, and Discrimination

There is perhaps no more archetypical example of the American suburban lifestyle than Levittown. The New York community was developed starting in 1947 as a new opportunity for Americans to own their own homes. The original 2,000 unit planned community sold out almost immediately and became nearly synonymous with the dream of single‐​family homes, white picket fences, and the growing American middle‐​class.

It also included in its lease documents a provision that property in the community could not “be used or occupied by any person other than members of the Caucasian race.”

Such racist practices were actively supported and encouraged by state, local, and federal governments. For example, the Home Owners’ Loan Corporation, a federal agency that provided low‐​interest mortgages to first time homebuyers, insisted that any property it covered must include a clause in the deed forbidding resale to non‐​whites.

Even after such explicit forms of discrimination were outlawed, many communities continued to fight efforts by low‐​income people and people of color to move to their neighborhoods, although their arguments have shifted to terms that do not explicitly mention race. One of the most important and effective tools for maintaining “the character of the community” has been zoning.

Zoning restrictions, including limiting construction to only single‐​family homes, as well as parking requirements, minimum lot sizes, yard/​setback requirements, lot coverage requirements, floor area ratios, and other landscaping requirements, deliberately prevented affordable housing from being built in those communities.

In this video for Cato’s Project on Poverty and Inequality in California, Ricardo Flores, Executive Director of the Local Initiative Support Corporation in San Diego explains how exclusionary zoning has long been used as a tool for discrimination:

Exclusionary zoning has all sorts of consequences that lock people out of the middle class. Educational opportunities, for instance, are too often distributed by zip code, especially in the absence of meaningful parental choice. Exclusionary zoning too often “ghettoizes” the poor and people of color, forcing them into neighborhoods with few jobs, high crime rates, and bad schools. And, by driving up housing prices, it contributes to the soaring epidemic of homelessness in many areas of the country.

Now, President Trump has thrown his support behind those who want to keep affordable housing out of the suburbs. This week he announced an executive order making changes to the Affirmatively Furthering Fair Housing rule (AFFH), an Obama‐​era requirement that localities take steps to combat housing discrimination in their communities. In isolation, it could be argued that the AFFH was unwieldy, unnecessarily intrusive, and in need of reform, but the administration’s actions appear to be part of a larger campaign by Trump and his supporters to block zoning reform that would make affordable housing more widely available in affluent communities. As Trump himself tweeted about his actions, “I am happy to inform all of the people living their Suburban Lifestyle Dream that you will no longer be bothered or financially hurt by having low income housing built in your neighborhood.”

This follows in the wake of several tweets and other statements in which the president and his backers have accused those backing zoning reform of wanting to “destroy the beautiful suburbs,” saying they would, “eliminate single‐​family zoning, bringing who knows into your suburbs, so your communities will be unsafe and your housing values will go down.”

But efforts to eliminate exclusionary zoning are not about destroying the suburbs; it is about letting more Americans share in that “Suburban Lifestyle Dream.”

Project on Poverty and Inequality in California

Even before the economic disruptions caused by COVID-19, far too many Californians were living in poverty. Now, that dire situation can only be expected to grow worse. The Cato Project on Poverty and Inequality in California was launched in 2019 to study the root causes of poverty in California and recommend practical solutions designed to help all Californians prosper and rise as far as their individual talents and abilities will take them. The project draws on decades of Cato’s expertise across a variety of issues, as well as close collaboration with Californians on the front lines of fighting poverty, whether business leaders, elected officials, or local activists.

Find Solutions

Clearly, the president has realized that his support among suburban voters, particularly suburban women, has dropped precipitously. But this effort to play to racial and class prejudices calls back to a much darker era of American politics that many Americans would prefer to leave behind. No doubt we can now look forward to Republicans and conservatives defending government regulations that deliberately stifle free markets and prevent landowners from making their own choices about what to build on their property.

But make no mistake, Trump’s support for exclusionary zoning is not only a blatant appeal to our worst prejudices, it is bad public policy.

July 6, 2020 1:43PM

If Housing Affordability Is a National Priority, Then Why Does the Government Tax Almost Everything You Need to Build a Home?

A few weeks ago, Cato hosted an event on rising home prices and the resulting housing crises in many US cities. It’s an issue that has enjoyed much media attention and widespread calls for reform – even the 2019 creation of a White House Council on Eliminating Barriers to Affordable Housing Development “to identify and remove obstacles that impede the development of new affordable housing.” Most of the Cato event was—much like the broader public discussion on US housing reform—spent debating the merits and effects of single‐​family zoning and other land use regulations. Less discussed, however, were the many ways in which federal, state and local regulations inflate construction costs, which—as the White House press release notes—often drive home prices (and affordability) in many US localities.

Among those regulations (yet unlikely to be mentioned by this administration!) are US import restrictions on almost everything you need to build a house, from the foundation to the roof and in between:

As the chart above shows, these import barriers primarily take the form of tariffs on imports, especially from China, implemented pursuant to various US trade laws. Duty rates can range from a few percent to well over 100 percent – an effective ban on the product at issue.

Some of these measures and their economic harms for US consumers—in this case, American home-builders/buyers—have been widely‐​reported (e.g., President Trump’s “Section 232” tariffs on steel and aluminum or “Section 301” tariffs on Chinese imports). On the other hand, others—especially those implemented under US “trade remedy” (antidumping, countervailing duty or safeguard) laws—are less known, even though they can result in much higher duty rates (often using rather dubious methodologies) and can have similar economic effects.

Speaking of those effects, numerous studies show that these tariffs (1) are mostly borne by US consumers, not foreign governments or exporters; (2) increase domestic prices—regardless of origin—for the goods subject to the tariffs (indeed, eliminating low‐​priced imports’ “adverse” effects is often the whole point); and (3) in the case of essential housing inputs like lumber, can inflate construction costs and end up pushing tens of thousands of Americans out of the housing market altogether. (They also aren’t very good at saving the protected US workers/​industries, either, but that’s a story for another time.)

At a time when affordable housing has become a national priority, you’d think that US law (or at least the Trump administration’s implementation thereof) might allow the agencies administering the long list of “housing taxes” above to prioritize the consumer harms that they impose or the broader national economic interests that they might undermine. Unfortunately, you’d mostly be wrong. The blanket Section 232 and Section 301 tariffs allow US importers to obtain narrow exclusions, but the process is costly, opaque and usually unsuccessful (especially when a domestic competitor opposes the exclusion). Our AD/CVD laws, meanwhile, expressly prohibit agencies from considering duties’ consumer harms, and – unlike other jurisdictions – lack any test for choosing the “public interest” over domestic industry pleas for import protection.

As a result, these housing taxes will likely remain in place for years to come, regardless of the affordability crises to which they contribute.

March 4, 2020 6:13PM

Ignoring Social Security Paints False Wealth Inequality Picture

My recent paper with Chris Edwards concluded that studies estimating wealth inequality without accounting for Social Security would both exaggerate the level of inequality and overestimate its increases since the 1980s.

We realized that increasing amounts of wealth for the bottom 90 percent had become tied up in Social Security claims over the past three decades. And a host of evidence suggests that redistributive programs, such as Social Security, actively crowd out private saving among those on modest incomes.

By reducing the incentive and ability for lower paid workers to save (not least because of payroll taxes), Social Security widens marketable wealth inequality, which has been the focus of most inequality studies. Perversely, critics of current levels of marketable wealth inequality then use these calculations ignoring Social Security as justification for increasing the generosity of transfer programs such as Social Security, that would iwiden their preferred wealth inequality metrics further.

A new study from University of Pennsylvania economists adds empirical blast to our intuition. Whereas the oft‐​cited work of Thomas Piketty et al restricts wealth inequality statistics to the distribution of marketable assets, this new study estimates the present value of Social Security wealth too, before assigning it across the wealth distribution.

Its conclusions are striking. Adjusting for Social Security wealth not only substantially reduces the level of wealth apparently “held” by the top 1 percent and top 10 percent, it completely changes the trend since 1989:

Our most conservative estimates suggest that between 1989 and 2016 the top 10% share [of wealth] declined by 3 percentage points and the top 1% share increased only slightly by 1.2 percentage points. This differs drastically from recent work that excludes Social Security and finds the top 10% and 1% shares rose by over 10 percentage points over this period.

Why does including Social Security wealth have such a dramatic effect? Well, first, because the implied wealth is large, at around 42 percent of marketable wealth today. But, second, because Social Security wealth has increased over three‐​fold between 1989 and 2016, due to expansions of the program, a fall in real interest rates, and population aging, which means the share of workers near the peak of their Social Security wealth (just before retirement) is larger. As a result, in 2016 Social Security represented 57.7 percent of all wealth held by the bottom 90 percent by net wealth, up from 14.2 percent in 1989.

As the study makes clear, there is no convincing rationale for excluding Social Security from studies of wealth concentration. But doing so exaggerates both wealth inequality levels and its increases over the last three decades. If some academics still contest that marketable wealth inequality alone tells us something interesting, then they must also acknowledge that Social Security’s existence widens that measure.

Strangely, those who consider marketable wealth inequality a huge problem do not often advocate abolishing Social Security to narrow it. In fact, the opposite. So do they really care as much about wealth inequality as their rhetoric suggests?

January 27, 2020 2:12PM

The Folly Of Bernie Sanders’ National Rent Control Proposal

“Landlords cannot be allowed to raise rents to whatever they want, whenever they want,” Senator Bernie Sanders boomed on Twitter in November. “We need…a national rent control standard.” Now, his presidential campaign advocates one: under Sanders’ housing proposals, all landlords nationwide would only be able to increase rents annually by one and a half times the rate of inflation or 3 percent, whichever is higher. Assuming the current CPI for Urban Consumers is the inflation measure used, that would mean a rent increase cap today of just 3.4 percent.

Given the likely unconstitutionality of a truly national rent control law, one suspects Sanders should be taken seriously but not literally. What he is really doing here is endorsing a spate of new rent control laws across states, encouraging left‐​wing activists to push for more stringent restrictions elsewhere. California has already instituted a 5 percent plus inflation cap for older buildings. Oregon has passed a rent increase cap of seven percent per year above CPI. New York just expanded protections for existing rent stabilized tenants and is expected to follow the others with a proposal for a general rent cap.

But that Sanders’ national proposal probably won’t or can’t be implemented doesn’t mean his reasoning won’t damage housing policy across the country. His claim that landlords can charge “whatever they want” entrenches the idea that rents are set through greed or market power, not supply and demand. And if crude, low level rent increase caps are implemented even in individual cities, it could have disastrous consequences in “hot” markets – particularly given proposals like his are shorn of the exemptions one usually sees for small‐​time landlords, new properties or vacant units, that can provide a safety valve for the rental market.

To see the folly of a national rent policy, consider the differential state of major U.S. housing markets. According to a Demographia report last week, Rochester, New York has a median house price just two‐​and‐​a‐​half times the median income for the city. Similarly affordable housing can be found in Cleveland, Ohio and Oklahoma City (both 2.7 median multiples). On the other end of the spectrum, major Californian housing markets such as Los Angeles, San Jose, and San Francisco all have mean multiples above 8, while Seattle (5.5), Miami (5.4), and New York (5.4) are still deemed “severely unaffordable.”

Given housing affordability varies so much, we shouldn’t be surprised that rents similarly differ by locality. And if we accept that rents differ across the country for similar housing because of different household sizes, incomes, land use and zoning laws, and more, it stands to reason that average rents will change at different rates year‐​to‐​year as these supply and demand factors vary.

Looking across the last 20 years shows this clearly (see Table 1). In the broad housing markets around San Francisco, Seattle, Miami and Denver, average rent increases have exceeded what Bernie Sanders’ proposal would allow in over one of every two years. In contrast, cities such as Milwaukee, Cleveland, and St Louis have rarely seen rent increases exceed Sanders’ arbitrary cap. Within cities, we’d expect differences by neighborhood too (though perhaps with lower variance).

Years in Which Bernie Sanders' Rent Control Law Would Have Bound, On Average, By Metropolitan Area (2000-2019)

Is there any reason to suspect that landlords have been greedier in Miami than Milwaukee, or Seattle than St Louis? Or is it more likely that supply and demand trends have been different across cities over that 20 years? This evidence, plus the fact that rents within individual cities’ neighborhoods tend to quickly converge for certain property types and size, suggests that landlords cannot raise rents to “whatever they, whenever they want.” In reality, they are constrained both by tenants’ ability to pay and the availability of substitute properties. Or, to put it another way, by supply and demand.

Once one accepts that rental prices are overwhelmingly the product of market forces, not landlord greed, you see why rent control, especially as Sanders’ envisages, is such a misguided idea. It effectively seeks to drown out the message that rising rents is submitting – of an increased relative scarcity of rentable accommodation that has led rents to rise to clear the market. Instead, capping rents forces on the market the comforting lie that property is abundant. That produces a whole range of well‐​documented consequences.

Consider neighborhoods where market rents are expected to rise in the coming year beyond Sanders’ current 3.4 percent cap. The rent control will therefore bind, and if market rents continue increasing rapidly (perhaps because of an unresponsive supply of new housing to demand) then rents paid will become lower and lower relative to the underlying market rent. For hot rental markets:

  1. Once it becomes clear rent controls are likely to be implemented, some landlords may seek to raise rents today before the cap becomes law, second‐​guessing how market rents will evolve in the very near future.
  2. Once the rent control binds, there will be a shortage of property relative to the quantity demanded. Existing landlords will, on the margin, seek to find ways to convert rental accommodation into non‐​controlled forms of accommodation, such as condos, offices, use through AirBnB, owner‐​occupancy, and more.
  3. Since rents cannot adjust to the new market reality over time, and there are no exemptions for new properties, capital investment in new rentable accommodation will fall in neighborhoods affected. Existing buildings will likewise be knocked down and replaced with buildings for other uses. These effects will be exacerbated if landlords perceive rent control to be the precursor for other restrictions on how they use their buildings or choose their tenants. The overall supply of rentable accommodation in the market will therefore fall relative to where it would have been.
  4. Existing tenants who do not want to move will benefit significantly from the controls, with big rent savings. But over time that will mean many people being in accommodation that is the wrong size or location for them. Extensive wait lists for properties and black‐​market bribes will likely proliferate.
  5. Ordinarily, crude rent controls can lead to a deterioration of property quality. Landlords have incentives to either allow the property quality to deteriorate so that the market rent falls to the controlled rent or else to change the tenure type to non‐​controlled forms. In the case of Sanders’ proposal, however, landlords can apply for waivers from the controls if significant capital improvements are made. In very hot markets there are therefore big incentives for rapid gentrification – converting to very expensive, high‐​end properties and then fixing rents very high initially to reflect binding rent controls into the future.

In short, a Sanders national rent control proposal would bring a lot of economic damage. But even if implemented more locally, such a crude rent cap would bring significant downsides to local housing markets, and the economy more broadly. And all based on the misguided idea that landlords have vast market power to set rents.

January 16, 2020 11:10AM

Raising Wages via Policy Is Hard or Destructive. It’s Time to Focus on Living Costs

A Presidential election year will bring with it plenty of good, bad, and ugly policy ideas to help struggling families. With the unemployment rate extremely low, much focus will be on real wage growth for workers. This is not currently disastrous – real wages are growing at around 1.4 percent per year (see Chart below). But after 15 years of relatively sluggish performance in GDP per capita growth, politicians will be trying to think of ways to broadly raise living standards further.

Average hourly earnings and personal consumption expenditure inflation

Over time, living standards are driven in large‐​part by rising wages, in turn driven by the rising productivity of workers. But in an excellent Bloomberg article this week, Tyler Cowen points out that many of the forces that determine workers’ wages are structural, global, and difficult for policymakers to affect. (And, I’d add, government attempts to affect wages – through, say a $15 minimum wage, or greater union bargaining –come with large trade‐​offs for jobs for certain groups).

Yes, we know that a robustly growing economy driven by broad‐​based productivity growth is the best way to get rising living standards. Unfortunately raising the productivity growth rate of the economy is difficult. Governments don’t really know what drives much of the innovation that really propels growth. And to the extent that we think growth can be enhanced through better policies (certain tax cuts, deregulation etc), Tyler shows that the effects might be offset in the coming years by other global headwinds.

If policymakers really want to improve living standards in the near term then, Tyler concludes that they should focus on living costs. In particular: housing, healthcare, and higher education costs. To which I say: Amen, brother.

A couple of years ago, I wrote “Government and the Cost of Living: Income‐​Based vs. Cost‐​Based Approaches to Alleviating Poverty,” making the case that with the budget deficit already large and productivity growth in a rut, policymakers should focus on undoing bad things that currently raise both raise prices for poorer consumers while also worsening the efficiency of the economy. In other words, they should focus on how far workers’ wages go in being able to afford important goods and services, rather than always thinking about nominal incomes.

Instead of just picking three sectors, as Tyler has done, I looked at what poorer families tend to spend their money on, honing in on specific current policies affecting housing, childcare, food, transport, clothing and footwear, and services governed by occupational licensing.

What I found was that bad laws and regulations at the local, state and federal levels of government in all these areas actually raised prices for the average lower‐​income family by anywhere between $830 and $3,500 directly per year (never mind the damage to economic efficiency). What’s more, my examination of policy areas wasn’t comprehensive. High healthcare costs are an obvious area to tackle, as Tyler says, and there are other transport and house building costs affected by policy (not least trade policy) that could be examined too.

A supply‐​side agenda for lowering basic living costs is an underrated tool to tackle genuine poverty and ease the pressure on all families. Though reform of these areas is difficult to achieve, and we must be cautious to politicians’ using concern about living costs as a precursor to price controls, too much focus on people’s living standards remains on income through wages or transfers, leaving a lot of regulatory low‐​hanging fruit ignored.

November 14, 2019 4:07PM

Rich Earn Wealth Slashing Prices for Poor

The Albrecht family of Germany is one of the richest in the world. They earned their wealth from innovations in price‐​slashing for European grocery shoppers. Their Aldi grocery chain is now spreading across the United States and bringing savings to millions of lower‐ and middle‐​income families. I profiled Aldi in this recent post.

bottles

Rather than bashing the rich, Bernie Sanders, Elizabeth Warren, and other liberals should be praising wealthy entrepreneurs and corporations, such as Aldi, that are reducing poverty through aggressive market competition.

Aldi was the subject of a fascinating profile in the UK Guardian. Snobby British observers did not think Aldi would succeed because they assumed consumers didn’t mind high prices. Aldi proved them wrong. UK grocery chains were used to fat profits. Aldi eliminated them. Sanders and Warren take note: open markets and intense competition transfers wealth from corporations to moderate‐​income consumers.

Here are some excerpts from the Guardian piece by Xan Rice:

On a Thursday morning in April 1990, in the suburb of Stechford in Birmingham, a strange grocery chain started trading in the UK. It only stocked 600 basic items – fewer than you might find in your local corner shop today – all at very low prices. For many products, including butter, tea and ketchup, only a single, usually unfamiliar brand was offered. To shoppers accustomed to the abundance of Tesco and Sainsbury’s, which dominated the British grocery sector with thousands of products and brands, delicatessens, vast fridges and aisles piled high with fresh fruit and vegetables, the range would have seemed dismal.

The managers of this new shop, which was called Aldi, had not bothered to place a single advert announcing its arrival – not even an “Opening soon” sign outside the store. Strip lights illuminated the 185 sq metre store, and from the ceiling hung banners listing prices for the goods stacked on wooden pallets or displayed in torn‐​open cardboard boxes on metal shelves.

… most people were confident they would fail in Britain, where there was a discernible snobbery about discount stores. When a reporter from the Times visited an Aldi store in Birmingham the following year, he thought it represented the “anonymous, slightly alarming face of 1990s grocery shopping”, without any pretence of sophistication. “One looks in vain for avocados or kiwi fruit.” The British supermarket giants, whose 7% profit margins were the world’s highest, were even more dismissive.

But today, the boasts of Tesco and Sainsbury’s read like a classic example of business hubris. While the major supermarkets dozed, convinced that many people would not be seen dead in a discount store, the German chains quietly turned the sector on its head. Nearly two‐​thirds of households now visit an Aldi or Lidl branch at least once every 12 weeks, according to the research firm Kantar Worldpanel.

… By sucking in shoppers and, as former Aldi UK CEO Paul Foley puts it, “sucking the profitability out of the industry” – profit margins of 2–3% are now the norm – the two German‐​owned companies have forced the “big four” supermarkets to take drastic measures.

… The stores’ overall feel is still more gritty than pretty. In the latest Which? magazine survey of its members’ favourite supermarkets, published in February, shoppers ranked Aldi third overall, behind only Waitrose and Marks & Spencer, despite giving it only one star out of five for store appearance. Merchandise is still displayed on pallets, in plastic crates or cardboard boxes – or arranged haphazardly, as in the case of the one‐​off, bargain‐​priced goods found in the “middle aisle”, which hosts a rapidly rotating assortment of ultra‐​discounted oddities.

… Packaged products in all supermarkets come with a barcode, which the checkout assistant will locate and scan. But look closely at a packet of Aldi toilet rolls and you will see not one but four barcodes: two long ones down the sides, and one on each large flat surface. A container of butter has three barcodes; a bag of carrots has two. For kidney beans, a pinstripe barcode is wrapped around half of the can. This means that whichever way the assistant holds the product the scanner will register it.

… what Aldi managers describe, straight‐​faced, as “the thrill at the till”: your trolley full of goods has cost less than you thought it would. The rushed, no‐​frills experience isn’t something you merely endure for the sake of saving money; the awareness of your savings makes that experience a pleasure in itself.

… Aldi managers were expected to make continuous improvements to the company’s processes, a business philosophy also used by Japanese manufacturers, where it was called kaizen. In their book “Bare Essentials”, Dieter and Nils Brandes argued that Aldi’s embrace of kaizen, its lean management structure and just‐​in‐​time approach to inventory – taking delivery of stock only when needed, to cut holding costs – made it the “most Japanese” company in Germany.

… “The rest of the industry hated us,” said Paul Foley, who was the company’s third employee in the UK, and chief executive from 1999–2009. “I heard us called parasites, leeches, and ‘a plague of locusts landing on our shores’” – because of the company’s record of dragging down prices and profit margins in new markets. “It means nobody will help you: nobody wants to rent you space, organise transport for you, or sell you product.”

… Today, new Aldi store assistants receive industry‐​leading pay of £9.10 an hour, and £10.55 an hour in London – the London living wage – while a graduate accepted on to the area manager programme starts on £44,000 and gets an Audi A4 company car. Paying well obviously helps attract and retain staff, who might otherwise go to chains where the pace of work is slower. But it also serves to drive up wages across the industry, which, because of Aldi’s lower overall employee costs, hurts its competitors more.