Strange times these. This time last year the IMF and OECD were urging governments to borrow more, now we have central bankers urging workers to demand higher pay. Reserve Bank of Australia governor Philip Lowe did just that last month. The Bank of England’s Andy Haldane didn’t quite go that far but in his speech in June he mused on why the Phillips curve is as flat now as it was when employers had the whip hand and kept pay inflation in check with draconian labour laws. The Federal Reserve, too, is stumped by low wage growth.
The UK’s long pay squeeze has an extra dimension of weirdness. As the FT’s Valentina Romei pointed out earlier this year, this is the only major OECD country where GDP has risen since the recession but wages have still fallen.
A number of things might explain non-existent wage growth but none really works on its own. It is true that, since the recession, we have seen an increase in non-standard employment and especially in self-employment. However, the majority of those in work are still in full-time employee jobs and the number in non-secure forms of employment seems to be falling or, at least, levelling off. Most studies have found that the overall effect of immigration on wages is quite small and certainly not enough to account for the scale of the UK’s pay squeeze.
Chris Dillow has a simpler explanation; power – or the lack of it. Workers simply don’t have the clout to make big wage demands. That might sound surprising given record levels of employment and, apparently, a skills shortage which employers have been complaining about since before the Brexit vote. But even this, it seems, can’t increase worker bargaining power enough to bring about even modest wage inflation.
Part of the reason for this is the sense of insecurity that has persisted since the recession. Even those in full-time jobs feel less secure than they did a decade ago and, when combined with the rise in more insecure forms of housing tenure, it is hardly surprising that people lack the confidence to ask for a pay rise.
At one time, such fears would be mitigated by strength in numbers and confidence in long-established trade unions. But union membership has fallen to its lowest level since the government started counting in the 1970s. This is not just a feature of the UK. In most advanced economies, union density (the proportion of those in employment who are members of unions) has fallen over the last few decades.
Furthermore, union density is much higher among older workers. In all countries except Iceland, (where trade union membership is abnormally high) the proportion of unionised workers is significantly lower among the young.
Much of this is because the older industries with older workforces are those where the unions are well established and they have been less successful at organising in service sectors and among non-standard workers. In short, unions are weak in the areas that need them most.
But, as Gavin Kelly says, there are some signs of a revival. Unions in the USA have organised retail and fast food workers to demand a $15 minimum wage. A new wave of alt-unionism is signing up previously unorganised workers and developing new tactics. The Independent Workers Union of Great Britain union has brought a number of court cases against companies using self-employed workers. Last week the Community union launched a new section for freelancers.
Felix Martin reckons that, after decades of weakened unions, the pendulum could be about to swing back again.
[J]ust as power shifts can explain inflation’s absence over the past decade, they also suggest one should not be quite so sanguine about its prospects over the next one. The 1970s showed how a pick-up in growth is not a necessary condition of inflation. If inequalities become extreme and politics-as-usual is seen to have failed, all that is needed is a renewal of political struggle.
And if we really are seeing a shift in the political and social zeitgeist, we could see a revival of interest in organisations fighting for workplace rights. Just as the Long Depression of the 1880s saw the rise of trade unions, the co-operative movement and mechanics institutes, the Great Recession and its aftermath may contain the seeds of new forms of worker organisation more suited to the 21st century labour market. Their tactics will probably be different from those of traditional unions and employers may not find them as easy to deal with.
So while it looks unlikely at the moment, we might see the return of collective action and wage inflation sooner than we think. After all, a lot of other very surprising things have happened recently. There is a certain logic to collective action. Or forebears understood that it was the only way to combat insecurity and an imbalance of power. A new generation may yet come to the same conclusion. Trade unions may be in the doldrums at the moment but it’s still too soon to write them off.
It’s years since I’ve had a ticking off from a professor (it used to happen quite a lot, trust me) but I got one today from Professor Simon Wren-Lewis, who says that the reason wages haven’t kept pace with economic growth is because, once you allow for an increasing population, we have barely had any economic growth. The little we had was then obliterated by sterling depreciation and indirect taxes.
Real wage growth in the UK has not been lousy because of lack of union power, immigrants or higher profits, but because economic growth (properly measured) has been stagnant, austerity included raising indirect taxes and we have now had two large depreciations in sterling.