Alan ManningSince the crisis began, the average British worker has suffered a fall in living standards deeper and longer than anything experienced for more than a generation. Without a solution, it is quite possible that the general air of discontent within our economy and institutions will continue to grow. In this article, Alan Manning presents several strands to a strategy.

Forty years ago an improving labour market and prices rising faster than wages would have led trade unions to march into the boardroom demanding higher wages and threatening strike action if those demands were not met. Pretty soon, as I argue in my essay from Resolution Foundation’s book Securing a pay rise published today, union leaders would have been invited round to Number 10 for beer and sandwiches to be cajoled into wage moderation to prevent an inflationary spiral taking hold. A lot has changed in the past 40 years.

These days the Prosecco remains in the fridge and David Cameron used a speech to the British Chambers of Commerce in February to urge pay rises for workers, a somewhat surprising sight. But, there is a simple explanation. Since the crisis began, the average British worker has suffered a fall in living standards deeper and longer than anything experienced for more than a generation. The recent drop in oil prices and the resulting lower inflation will offer some respite, but not much.

It will be the votes of average people that decide the outcome of the upcoming general election. As such, the leaders of all political parties would love to offer up policies designed to raise the living standards of the average worker. But there are not many ideas around on how to do this, hence David Cameron’s plea to business.

When it comes to thinking about how wages are determined, these days one must think about things from the perspectives of employers as that is with whom the decision now lies. What makes employers pay higher wages is when they are struggling to recruit and retain workers, as a result of competing for labour directly with other employers. One of the features of the labour market in recent years is that the level of direct job-to-job moves has been falling – these days a higher proportion of new hires are from non-employment rather than from other jobs. And when your latest hire is from non-employment there is no other employer to compete directly with.

We currently seem stuck in a situation where wage growth is very weak and employers seem very reluctant to move from this. This is a result of the shift in the balance of power. But this does not mean that we will necessarily be stuck in this situation for ever. If the labour market continues to recover and, more importantly, if productivity growth re-starts, then the pressures for wage growth will build and ultimately this will translate into higher wages. And once there is a tick up in the going rate, norms may change very fast.

It is not just in wage determination that one observes the shift in the balance of power. We see employers trying to pay as little as possible for workers: the growth in zero-hours contracts; not paying for social care workers’ travel between client; perhaps forcing workers to become self-employed so they will not be covered by the minimum wage.

But without a solution, it is quite possible that the general air of discontent within our economy and institutions will continue to grow. If it is time to redress the balance of power between workers and employers, what can be done? There are several strands to a strategy.

First, and returning to a theme others in this collection have touched upon, make sure the unemployment rate is low to maximize the competition between employers for workers.

Second, use government regulation where necessary, for example as Philpott has argued to limit zero-hours contracts, to force employers to pay carers for the time spent travelling between clients.

Third, try to rejuvenate unions to provide some countervailing power. Unions have rarely raised the pay of the lowest-paid in society because they have little representation amongst these workers. An important part of people’s identity was once their job and their union, and this sense of pride and solidarity needs to be re-created in the middling jobs in today’s labour market – they are just as vital to the economy as the coal miners ever were.

Fourth, mobilise grassroots campaigns on specific pay issues. These have had some success not just in those employers who sign up to the Living Wage but have probably also played a role in, for example, Walmart’s recent decision to raise its lowest hourly rate to $9.00 per hour (though commercial considerations also loomed large).

Solving the problem will not be easy – trust in government and faith in collective action to solve problems is not high at the moment. But without a solution, it is quite possible that the general air of discontent within our economy and institutions will continue to grow.

A full version of this article is published today in the Resolution Foundation book Securing a Pay Rise: the path back to shared wage growth. All of the essays, along with details of how to receive a hard copy of the book, are available at http://res-fdn.org/securingapayrise

Note: This article gives the views of the author, and not the position of the British Politics and Policy blog, nor of the London School of Economics. Please read our comments policy before posting. 

About the Author

Alan ManningAlan Manning is Professor of Economics in the Department of Economics and Director of the Community Programme at the Centre for Economic Performance at the London School of Economics.

 

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