In today’s highly competitive labour market, businesses are often pressured to cut process costs to meet customer demand. This cost-cutting approach, frequently referred to as the “race to the bottom,” can have severe consequences, particularly in the temporary staffing sector. When price becomes the sole focus, the quality of service, worker conditions, and compliance with regulations are often compromised. In this blog, we explore how the labour market is being affected, and why value-based pricing and ethical practices are essential for long-term success and sustainability.
The Race to the Bottom and the Temporary Labour market.
The phrase race to the bottom is often applied in the context of labour and staffing. Many companies go to great lengths to keep wage costs low to protect profit margins while still offering a competitive product or service. The retail sector, for example, is often accused of engaging in a race to the bottom and using wage cost reductions and benefit cuts as easy targets. The sector resists labour law changes that would increase benefits or wages, which, in turn, would increase costs.
In response to rising wages and demands for benefits, many retail companies have moved the production of goods overseas to regions with lower wages and benefits or have encouraged their suppliers to do so using their purchasing power. The jobs that remain in the domestic market (the in-store functions) may cost more as laws change, but the bulk of labour involved in manufacturing and production can be moved to regions with lower-cost labour.
How Does Capitalism Contribute to the Race to the Bottom?
Capitalism is defined by competition between businesses to grab market share, and among workers to fill jobs. Companies must stay profitable, and workers need to stay employed. As a result, firms try to become the low-cost producer so that they can best the competition and grab market share. This means that firms begin to compete primarily on price. However, cutting costs amid fierce competition also can mean cutting corners in the form of lower quality, lower safety standards, and lower wages. At the same time, it can produce negative externalities like pollution, waste, and other social ills.
The race to the Bottom.
A race to the bottom occurs whenever competition becomes so endemic that it leads to negative consequences and externalities. For instance, businesses may cut corners and sacrifice quality to maintain low prices and keep market share. Governments may also reduce taxes and reduce regulations and environmental standards to attract industry to remain or relocate to their jurisdiction. In the end, tit-for-tat undercutting leads businesses and governments to literally race each other to the bottom of the barrel in a destructive spiral.
The question, therefore becomes, Is our market sector in a Race to the Bottom?
Increasingly we are seeing many recruitment decisions becoming based on Price Alone and this is driving providers to look to cost saving measures to remain competitive and meet client expectations. Inevitably this leads recruiters to cutting corners and, in some cases, creative accounting practices all of which elevates the risk index for the paying client, can compromise the worker and ultimately move the onus of any negative repercussions onto the end user.
Cost based pricing is ineffective as it takes no account of customers’ real needs or wishes as it’s purely focused on minimum “investment costs” necessary to bring a product or service to market. Quality should be a standard measured against other things of a similar nature. A degree of excellence which carries a distinctive attribute or characteristic which stands it apart from others in its class. When something is solely based on price, it carriers with it, no assurances, protections or peace of mind and always relies on the adage of, you get what you pay for. We see absolutely no loyalty from this client profile and a complete willingness to change flags at the drop of 5p in the pound, when it comes to the question, what do you charge? Clearly this is indicative of a pyrrhic victory as being successful in securing a service incapable of doing what it’s designed to do, can do more harm to a service diminishes any potential win.
Value Based Pricing-v- Competition Based Pricing.
It’s ironic that we work in an industry which is so heavily regulated, value based and quality driven. Yet when it comes to external services, which are purchased to support those very company standards, the starting point for many simply becomes price. Most businesses have faced challenges due to high inflation rates resulting in the costs of goods and services increasing at eye watering rates annually over the last decade. Our industry hasn’t escaped these external pressures and the cost of doing business in today’s market continues to rise. Yet many providers seem to think that “Temporary Staffing” is a superfluous service, a necessary imposition enforced at times of crisis and therefore should come in at the cheapest price possible otherwise it’s an expensive luxury. This sticky plaster approach encourages nothing more than sharp practices from Agencies adopting strategies designed to answer this call that by avoiding paying the correct tax, operate staff under the guise of self-employment, not applying statutory regulations and benefits for their workers. Incorrectly applying VAT, running illegal umbrella schemes, charge workers for ancillary services which should be free at the point of delivery and many other grey operations designed to justify their cheap as chips price point and serve his master’s voice.
Elwood Healthcare are privileged to work with many clients that see our services as an extension of their own provision and therefore realise the importance, security and reputational value of consistency and continuity throughout their workforce. This is brought about through qualify operations across all endeavours, including setting the same demands of their providers as they do of their own in-house provisions. Our pricing therefore reflects our clients’ standards and their company values with our services bespoke to their needs and becoming fit for purpose in their regulatory space.
Your agency service doesn’t need be the weakest link in your service chain and the regulator isn’t going to be interested in price when it come to non-compliance or a safeguarding investigation.
When was the last time you audited your Agency Provision, how satisfied are you that your agency services protect your CQC or Ofsted rating? Surely you would agree that best practice trumps best price, when it comes to running a regulated business and peace of mind coupled with the sustainability of your business is priceless.
For more information on our service provision please contact a member of the team on:
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