Connected Research

Union policy research in the 21st century

The recession and middle Britain’s shrinking wages

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The TUC has published a ToUChstone pamphlet – the first in a new series – exploring the role of the declining share of wages in national wealth and the much less well-known role this has played in the recession (see TUC press release).

The author on behalf of ToUChstone – Stewart Lansley – also wrote the earlier work on middle income Britain (blogged here) which documented the rise of an onion-shaped distribution of wealth in the UK and the rising divide between an affluent 40% and the bottom 60%. In this new report, he focuses in more detail on why middle- and lower-income Britain has been left ‘in the slow-lane of rising prosperity’ (a theme also picked up in The Guardian‘s Comment is Free pages today, although seemingly rather obliviously to Lansley’s work).

In his blog post for ToUChstone introducing the pamphlet, Lansley highlights that wages held steady at around 60% of national output for much of the twenty five years after 1945, before rising to 65% in 1975. Now, however, they account for 53% – a fall mirrored elsewhere: more steeply in the US, more shallowly in continental Europe – as a result of the erosion of employment rights [here Lansley is kind to his hosts: trade union weakness in general terms is also a factor], as well as reduced demand for unskilled labour and the transfer of jobs triggered by globalisation. All of this has contributed to boosting the bargaining power of employers which has had the effect of wages falling behind productivity growth – the wage squeeze.

The effect is that families borrow more to maintain living standards – staggeringly, households borrowed an average of 45% of their income in 1980 but 157% in 2007.  Of course, individual choice is an aspect here, but the wage squeeze implies that, formerly, such a level of living standards were financeable from wages whereas this is currently not the case. At the same time, rising company profitability – the counterpart to wages falling behind productivity – flowed into justifying record dividend payments and an explosion in executive remuneration, while higher rates of return in financial engineering led to the replacement of funding for long-term success with money being moved around specifically to chase the quickest return. This, in turn, lays behind the other, more well-known, factors in the current crisis.

The policy conclusions are not only that cuts would end a recovery before it has properly begun – since wages fuel spending – but that, in the long-term, the share of wages in national output needs to rise again.

Clearly, this latter is much easier said than done. Essentially, we need to confront and overturn a thirty-year orthodoxy which, albeit incorrect, has led to a major weakening of, and support for, the institutions capable of delivering that level of confrontation. It means essentially that people need to adopt a much greater degree of solidarity with and for each other, and reducing the importance of self (and self-interest) in doing so. Twelve years of Labour government, despite some important initiatives and an awful lot of warm words, has done little to change the increasing individualisation which lays behind the policy initiatives of the previous twenty. Challenging that orthodoxy clearly needs to take its place in a proper consideration of economic alternatives and Lansley’s pamphlet certainly helps to inform the debate here. Nevertheless, we should recognise not only that this sets out a specific challenge for trade unions (and, indeed, their members) but also that the scale of that challenge is significant.

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Written by Calvin

12/11/2009 at 7:16 pm

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