Connected Research

Union policy research in the 21st century

Pay: prospects for 2010

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In recognition of today’s joint TUC/Incomes Data Services conference on pay bargaining, the TUC has produced a list of ten myths on pay in the context of the recession which you can find both here and on Richard Exell’s post on ToUChstone.

The myths, which are drawn from the different parts of the union movement, are common ones and ones that are likely to appear again and again over the next few months, not least since the spring months are the most significant ones for pay negotiations, with the largest number of pay deals concluded during the January-April period; and there’s also the issue of the forthcoming general election. They’re well worth repeating in these specific contexts, and they do need to be tackled whenever they occur, so here they are in brief:

1. MYTH: above inflation wage increases could set off a damaging wage spiral. REALITY: wages are not driving inflation at the minute and it’s normal in the long-run for wages to increase above the rate of inflation

2. MYTH: further freezes and cuts are needed to make companies profitable again. REALITY: Some companies may be struggling but rates of return remain generous and cuts are likely to be damaging to growth

3. MYTH: Wage freezes have been widespread through the private sector. REALITY: Two-thirds of companies gave rises last year, with a median increase of 2.3%

4. MYTH: Wage freezes will be just as widespread in 2010. REALITY: the economy is growing again and inflation is on the rise. Wage claims, and pay agreements, are likely to follow suit

5. MYTH: Unions have accepted wage freezes because they are too weak to negotiate pay rises. REALITY: Wage freezes have occurred where there are genuine cases of hardship but unions are wise to cases of wage restraint designed to boost company profits

6. MYTH: Public sector pay freezes are an alternative to job losses. REALITY: a false choice, since short-term pay restraint has a limited effect other than on staff morale

7. MYTH: A minimum wage freeze will prevent job losses in the private sector. REALITY: this makes little sense socially, given the background to the recession, or indeed economically since the lowest paid are likely to use more of their wages on spending than on saving

8. MYTH: Raising the minimum wage for young people will make it harder for them to find jobs: REALITY: The recession has hit young people hard, but employment has fared better in low-paying sectors

9. MYTH: Public sector wages rocketed while private sector wages contracted last year. REALITY: data changes caused the discrepancy, not least given the dominance in the average wage figures of the nationalised banks. Since 1999, public sector wages have grown more slowly than those in the private sector.

10. MYTH: Public servants earn more than workers in the private sector. REALITY: this is like comparing apples and pears. Where similar jobs are compared, the differential does not depart strongly from zero.

More myths to the list can always be added: from a purely private-sector perspective, for example, we have the myth (not least in a recession, but not limited to such times) that pay can be meaningfully linked to performance. In the coming weeks and months, this blog will be doing its bit to bust the myths on pay that come our way.

The myths on this list are busted more fully on Richard’s ToUChstone post, while regular readers of ToUChstone will recognise several from individual in-depth postings in recent weeks. As Richard says, the recovery remains fragile and is likely to be threatened by wage restraint. Individual sets of pay negotiations are likely to be dominated more by the circumstances of the organisation concerned, with the economy providing more of a backdrop, but, from a macro perspective, it is clear that a growing economy will be driven by people spending money – and that implies a clear economic need for real wage rises.


Written by Calvin

16/02/2010 at 12:42 pm

One Response

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  1. Hi Calvin,

    Great article. I caught the interview with Brendan Barber this morning on Radio4, did you?

    The TUC/IDS position immediately reminded me of a statement issued by a group of US economists (a real mixed bag of free marketeers, libertarians and a sprinkling of liberals) issued last June and published by the left-leaning Economic Policy Institute:

    In a nutshell the US statements mirrors the call for recognition of the need to protect pay as a means of propelling the UK economy out of recession. It goes further however, on singling out trade unions as the specific vehicle that, in comparison to the rabid nature of the banking system, have historically sought stability and faireness in pay systems and throughout the economy.

    Sadly, the statement was, as you can imagine, rubbished in outlets like Fox News etc., and didn’t the publicity it deserved – even across the left media across Europe.

    If you haven’t seen this before I’d welcome your feedback.



    Ian Manborde

    16/02/2010 at 6:16 pm

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