The fossilised power of the older worker

Yesterday’s Resolution Foundation’s report on living standards showed how the post-recession pay squeeze had affected the pay of different groups. It found that younger workers had seen the biggest reduction in median pay while older workers had got off lightly by comparison.

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Chris Giles responded with a piece on the “The dark underbelly of Britain’s jobs miracle”. His conclusion:

The gains for older workers come not because they are worth it but through the exercise of power.

I had a quick Twitter conversation with Chris about this. He’s not talking here about an overt grey conspiracy to hold down young people’s pay. The power he describes is the insider effect, where privileged positions are preserved. The accumulation of resources and positional power over time has entrenched the power of the older workers.

This, though, is legacy power. It derives from the older workers having come into the workplace during a time when employment terms and income distribution were more favourable to middle earners. They are more likely to have hung onto the final salary pensions and pay structures with annual increments negotiated long ago by once powerful unions or staff associations. Many will still have their employment protected by redundancy schemes designed during the same period, making them expensive to fire.

But since then, as Chris says:

Private and public sector employers have cut wage bills by eliminating automatic annual increments for inexperienced staff and waiting for their older, more expensive workers to retire on rather good pensions.

The young are more likely to be on less favourable employment terms and to have less secure employment. An LSE report, also published this week, found that younger workers have borne the brunt of job losses as well as falling wages.

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Young people are easier and cheaper to fire and, when organisations retrench, they keep the workers with more experience.

Having said all this, older workers are still not the highest earners overall. The peak earning period for average hourly pay is the 40s for men and even earlier for women. For many people,earnings decline once they get beyond 50.

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Source: ONS

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Source: Resolution Foundation

On the whole, older workers are not highly paid compared to their colleagues in their 30s and 40s, it’s just that they have been able to hang onto their pay rates and therefore seen their incomes fall by less. Furthermore, the generous pensions will disappear over the next few years too. It may be a popular stereotype at the moment but the wealthy oldie is likely to be an ephemeral figure.

I wonder if we are in danger here of framing as a generational issue something that is actually about a changing balance of power in the workplace. For a number of reasons, organisations are able to employ people on much less generous terms than they did twenty years ago. Those who have accumulated resources and positional power are able, to an extent, to insulate themselves from the effects of these changes. The recession has disproportionately affected those without accumulated resources. Those people are more likely to be young.

The power of the older workers isn’t being actively exercised like that of a cartel or a trade union. It is based on what happened in the past. Just as fossil fuels contain trapped sunlight energy from millions of years ago, the power of the older worker comes from gains trapped during the last century. It is fossilised power from a time when middle earners had a lot more clout than they do now. It is therefore finite. Even when they get to their 50s, the next generations won’t have that power. The old will take it with them when they go.

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5 Responses to The fossilised power of the older worker

  1. Yes, this makes sense.

    The gains made by the post-war generation, including a free-at-the-point-of-use health service are set to wither as that generation declines.

    I fear for the next generation for whom life is, and will be, be nastier, more brutish, and impoverished.

  2. SK says:

    Perhaps this has to do with BoE keeping rates/ annuity rates low and therefore pushing older workers to continue working after 65 and not allowing younger people to take these positions.

  3. Bill Wells says:

    The structural features of the UK labour market favours ‘outsiders’ much more than insiders. The ‘light and even’ employment regulation system enables greater access to the most disadvantaged parts of society that in most other countries. [See my comment to the ‘Hard Labour’ blog link below.]

    http://hardlabourblog.com/2015/02/17/ud/#comments

    And as the focus of labour market policies has consistently over decades to use work as the best form of welfare by promoting welfare to work for the most disadvantaged, having a small labour tax wedge by international standards and, in recent years – under both governments – reduced income tax by enormous amounts. This together with the extension of welfare to work to ‘inactive’ benefits and pensions combined with the robust benefits has led to inequality of wages, take home pay and incomes at the bottom end of the distribution within society improving for many years. Amongst the people who have benefited the most in terms of employment rates have been lone parents, the disabled and previously poor pensioners. [See Figure 3.3 of the latest IFS publication.]

    And with the overall employment rate approaching the post war records of around 1966 I think that this, together with the fact that this good employment performance has been mainly based on increased hiring rather than reduced separations, gives the lie to the lump of labour fallacy. And particularly the belief that the power of older people has been exerted in order to maintain jobs at the expense of young people.

    Against this background the question to me is not why young people have done so badly but rather why they have done so badly compared to other disadvantaged groups. And this question is even more marked given that the numbers on JSA aged 18-24 are at levels close to a 40 year low.

    Part of the answer, I believe, is that there has been a complete dismantling of a universal system which follows the individual young person who is making the transition from education to work – whether it was a universal careers service or the YT Guarantee – which provides more active help the longer that the transition takes. Support for this view is provided by the fact that whereas there has been a general reduction over time in the duration of worklessness amongst the most disadvantaged groups – including young people who are already in the labour market – it has increased for young people who are making the transition [You mention in your blog that there are more ‘job losses’ amongst young people. This is not true the falling employment rate is due to increased duration of worklessness.]

    And this increased duration seems to affect people at all levels of qualifications – up to and including degree holders. It seems that welfare to work is only working for people on welfare (or pensions). The consistent and continuous help that the state provides to each individuals leaving education seems to consist of a spurt of activity (if that) at the start of the transition and then not much help thereafter. Whereas on welfare to work the longer that people remain unsuccessful the more help is given by the state and the more is expected of the individual.

    Bill Wells

  4. Dave Timoney says:

    Re “I wonder if we are in danger here of framing as a generational issue something that is actually about a changing balance of power in the workplace”.

    Hmmm. Do you think David Willetts was perhaps being disingenuous in his book, “The Pinch: How the Baby Boomers Took Their Children’s Future, and Why They Should Give it Back”?

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