Calling for pay restraint is pointless

Alistair Darling and Mervyn King have called for pay restraint and warned of an inflationary spiral if wages and prices increase. Angry Alice is having none of it though:

The plea is almost certainly a hopeless one. Back in the 1970s, when pay restraint was a serious policy option, the country had a few haphazard institutions that could make the policy stick. It is largely forgotten period, but during the late 1970s, the Callaghan government managed to reduce inflation through a serious of agreements with trade unions. Callaghan traded off lower wage growth with high public sector expenditure.

However, it all fell apart in 1979, when Callaghan tried the trick once too often. Today, that corporatist cohesion has disappeared. Today, there are no private sector trade unions that could collectively enforce wage restraint.

Wage restraint failed in the 1970s, when the government had a lot more control over the economy than it does now. What makes Alistair Darling think he will be able to make it stick in 2008?

As Alice says, in today’s more individualist labour market, it is more likely that people will think, “wage restraint is fine for everyone else but I’m getting my pay claim in now.”

Over the last 25 years, income inequality has grown dramatically. The state owned enterprises were privatized; insiders grew rich, while millions of jobs were destroyed. Social housing has virtually disappeared, while the public services have deteriorated. The UK is a country where finance matters more than manufacturing, where profit is king and whatever is mine belongs to me alone.

I want my income stream fully indexed for inflation. If someone else wants to take Darling’s advice and become poorer, then go for it, but do not expect me to follow.

The other major difference between now and the 1970s is that, as Chris Dillow says, many of us are doing jobs which could be done elsewhere in the world.

Wage inflation is low because there are two billion Indians and Chinese threatening to do our jobs more cheaply – not because anyone wants to make a contribution towards achieving low inflation.

If there are reduced pay demands this year, it will be due to the threat of redundancy rather than government policy or any concern for the greater good.

As ever, pay is a function of power. Those whose skills are in demand and, more importantly, who have the right networks and know the right people will see their pay continue to rise. Those that don’t will be nailed down with paltry pay rises or will find themselves, as one of my former lecturers put it, being empowered to remodel their careers within the labour market.

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1 Response to Calling for pay restraint is pointless

  1. helendamnation says:

    I would love to see the public sector impose a one-size-fits-all wage increase of a certain number of pounds a year. The total cost of the bill could stay the same, while it would provide a far bigger rise to the lower-paid than the higher-ditto.

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