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.
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.
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.
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.