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.
Chart from OECD Employment Outlook, June 2017
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.
Chart from OECD Employment Outlook, June 2017
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.
Update:
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.
Flip Chart Fairy Tales 
I wonder if there is any differential between large firms and the rest…
Any thoughts/data on housing costs and pay growth? I wonder if workers spending ~50% of their income on housing are less likely to ask for a raise (or look for different work) than those spending 25%?
«forebears understood that it was the only way to combat insecurity and an imbalance of power»
But in those times it was 90% pennyless labourers, 9% foremen etc, and 1% rentiers.
Low wages and job insecurity and the party promising, more or less overtly, to deliver them are today much more popular because a much larger fraction of the population is made of rentiers.
It is my usual story: thanks to the unions and their party many former pennyless labourers got good wages and pensions, and were able to buy property, and then in middle age or retirement they realized that they had become “Blow you! I am allright Jack” tories.With a desire that remaining labourers be cheap and insecure.
The success of the unions and their party effectively created a large minority of voters who reckon themselves to be gentry. Their dream is to go back to the 50s, the 1850s or the 1750s.
«a large minority of voters who reckon themselves to be gentry.»
Plus a significant fraction of labourers, especially large among the low paid, does not even have the right to vote, while the mass of rentiers not just have the right to vote, they exercise it very diligently.
“does not even have the right to vote,”
Then they shouldn’t be here….immigration smashes down wages at the bottom end o’ the pay scale….you don’t need to know that if there are stacks of people around willing to work for next to nothing, that makes it impossible to ask an employer for more cash because the employer is competing against employers who will employ people for next to nothing…
..mass immigration – wrecking the UK more than ever.
So the push down on wages is nothing to do with mass immigration? Workers powerlessness isn’t connected to the fact that if they don’t agree to lower wages then they can be substituted by workers from Eastern and Southern Europe?
Krishna Guru-Murthy on Channel 4 recently suggested that immigration reduces house prices. Presumably the argument that reduction in wages is nothing to do with mass immigration comes from the same economics text book.
Maybe a bigger effect is that all those workers who are immigrants cannot vote in general elections, while the vast majority of rentiers, retired or not, have citizenship.
«reduction in wages is nothing to do with mass immigration»
As to that the claim is that mass immigration involves no average reduction in wages: for every low-end wage that stops growing or falls because of competition from low-income countries, a high-end income grows. That to me seems a fair claim supported by the data. Mass immigration does not make english natives poorer, it redistributes from relatively poorer english natives to richer english natives (and to a lesser extent to much poorer immigrants).
Also, immigration, both legal and illegal, from much poorer extra-EU countries has been bigger than from EU countries, and entirely within the powers of the UK government, and after brexit the UK government will be free to replace expensive EU immigrants with some rights with much cheaper asian and african immigrants with fewer rights, if that is the will of the voters, and many affluent “gentry” voters love the idea of much cheaper hired help.
Anyhow, currently England is a target for immigrants only because low-paid jobs are plentiful because of yet another Lawson/Barber style debt boom: usually immigrants move to countries with a trade surplus. If England has a recession as long as that of post-bubble Japan lots of english workers will deeply regret losing the freedom to move to France and Germany to get better paid jobs, while polish and romanian workers will continue to have it.
If I list where my Northern English friends have gone to ply their trades, it is pretty much everywhere on the planet apart from continental Europe, so losing that escape route is not much of a loss.
Meanwhile, maternity wards are closing their doors because of an inability to meet demand. Well, if 25% of your demand is coming from people born outside the UK, that will happen, as it will in schools, hospitals. We do not carry a massive surplus of skilled people to cater for several million people coming here. If it is a choice between poverty in an over-crowded overstretched country and poverty in a more balanced country, most people will opt for the latter.
«pretty much everywhere on the planet apart from continental Europe»
The question is numbers and that depends on rights: today english workers can move to work and settle in 27 mostly affluent, nice countries without any limitation and with no or minimal formality, as a citizenship right. That right is sold by some less scrupulous EU countries for around £200,000 to non-EU citizens.
Having voted to give up that citizenship and its rights, how many other countries in the world with average wages not far from english wages accept english immigrants without a visa and a quota and give them automatic healthcare and civil rights identical to those of their own citizens?
<>
I like this. it explains the hysteria from Metropolitan liberals vey well. I will use it elsewhere.
my bad html. “Mass immigration does not make english natives poorer, it redistributes from relatively poorer english natives to richer english natives” in the brackets.
«Workers powerlessness isn’t connected to the fact that if they don’t agree to lower wages then they can be substituted by workers from Eastern and Southern Europe?»
Much of that argument can be summarize as “southern english jobs only for northern english workers”, with the idea that by voting for “Leave” northern english workers will be able to emigrate to southern England and force southern english employers to pay higher wages because there will be no longer competition from “workers from Eastern and Southern Europe”.
But that assumes not just that plentiful southern english jobs will be there forever, but that southern english employers are stupid and won’t replace the flow of “workers from Eastern and Southern Europe” with a flow of much cheaper workers from Africa and Asia. But southern english employers, from affluent pensioners to big corporates, are not stupid and know well that there are billions of very cheap workers outside the EU begging for a work permit as an indentured serf. Their friends who are “expatriates” in Dubai etc. tell them stories of just how cheap and obedient those indentured serfs are, and so did their grandparents who were “expatriates” in the colonies during the English Empire.
The objection of many employers to EU membership was/is that in practice it meant discrimination in favour of relatively expensive immigrants from eastern and southern Europe instead of much cheaper immigrants from Africa and Asia.
Understood. But I think it will be hard to maintain non-EU immigration to replace EU migration after we leave without that being seen as a betrayal of Brexit. non-London English didn’t vote Leave just to permit London to import lots of non-EU workers instead, they voted Leave to force the government to invest in them instead, and will not sit back and allow that objective to be pushed to one side.
«non-London English didn’t vote Leave just to permit London to import lots of non-EU workers instead»
It is not London vs. non-London, it is tory property and business rentiers, even if mostly in the south-east, who want high house prices and low servant wages vs. everybody else (renters and low-pay workers), even if mostly in the north.
The reasons why they have had their way for the past 35 years and there was a surprise in the 2016 referendum are:
* Some of the affluent rentiers fantasize that the national humiliation of being the slaves of the EUSSR/ Fourth Reich/4th Gallic Empire is a matter of principle, more important than their financial advantage, at least in a referendum that does not directly affect domestic policy.
* The general elections are usually won on wallet issues, and with FPTP, and the votes of workers and renters are heavily concentrated or very diluted, and in particular those of affluent property and business rentiers determine marginal seats.
Those two reason are why 95% of Labour MPs and 75% of Conservative MPs were pro-“Remain”, despite their constituencies voting “Leave”, and why the tories, Conservative or New Labour, have won election for 35 years.
«it will be hard to maintain non-EU immigration to replace EU migration after we leave without that being seen as a betrayal of Brexit.»
I really laughed reading this because of the astounding innocence of this “flipchart fairy tale”.
The “Leave” campaign was absolutely clear that the slogan was “take back control” of immigration, not “less” immigration, and that the 52^ voted for “take back control” not “less”. Plus the vote was about *EU* freedom of movement, not to non-EU freedom of movement. So with certainty the referendum was a vote that can result in *more* immigration, because “take back control” means that too, and in particular in more immigration from non-EU sources:
* Specifically a lot of english citizens of african and asian descent have made clear that they voted for “Leave” because by giving “white” EU immigrants free movement, EU membership effectively reduced the quota for “colored” african and asian immigration of their friends and relatives from their original villages.
* More generally a lot of more affluent “Leave” voters in the south voted not against free movement, but against EU integration, because they think that England should have closer ties with the anglosphere of the other “white” anglo-american culture countries and the “colored” ex-colonies of the Commonwealth, because of the imperial past and because the “colored” ex-colonies can be large suppliers of very cheap and obedient servants.
Plus a large part of the business sponsors of UKIP and “Leave” badly want a hard-exit with the opportunity to have “Special Enterprise Zones” in England which are like those in Dubai or the Marianas, exempt from immigration rules, profit taxes, corporate duties, employment laws, staffed by desperate asian and african immigrants on £1-2/hour, with a very small number of english “trusties” foremen. Try to imagine Sunderland turned into a a “Special Enterprise Zone” and the Nissan plan entirely staffed almost by bangladeshi and moroccan workers, assembling “extraterritorially” japanese made car blocks into cars to export to the EU.
«force the government to invest in them instead»
These are the same workers who over the past 35 years have had to accept the industries in their regions to be smashed, trade unions made impotent, their pensions reduced to a third, their party becoming the champion of the “aspirational voters who shop at John Lewis and Waitrose”, have elected P Mandelson as MP in Hartlepool, and in the past 10 years have had to accept a cut in low-pay wages of 10-20%, the virtual abolition of pension contributions and sick pay for many, and a similar cut in social insurance, and an increase in minimum wage workers from 1 in 50 to 1 in 10.
The editor of the New Statesman, J Cowley himself 🙂 even wrote recently:
http://www.newstatesman.com/politics/2014/11/ed-miliband-s-problem-not-policy-tone-and-increasingly-he-seems-trapped
«Much of that argument can be summarize as “southern english jobs only for northern english workers”, with the idea that by voting for “Leave” northern english workers will be able to emigrate to southern England and force southern english employers to pay higher wages because there will be no longer competition from “workers from Eastern and Southern Europe”. »
That doesn’t ring true to me as an explanation for northern Leave voters, as it would imply that they would like to move south (but feel unable too because the immigrants have priced them out of homes and/or jobs). My impression of working-class Leave voters though is that they tend to be very attached to their home towns and unwilling to move – they expect the jobs to come to them!
“So the push down on wages is nothing to do with mass immigration? Workers powerlessness isn’t connected to the fact that if they don’t agree to lower wages then they can be substituted by workers from Eastern and Southern Europe?”
Well said….well said.
We are seeing a rise of unions and lobbying groups for renters e.g. Acorn, Generation Rent and priced out so yes i suspect we start seeing people being more militant in future.
There has to be a wholesale change in attitudes and government, the current reality is described well in one of my usual quotes from a commenter on another blog:
“I once saw a business spot on the BBC World News in Germany where they showed the British embassy in Vietnam hosting visits for UK business leaders to see how they could improve profitability by outsourcing to Vietnam”
On the topic of “Special Enterprise Zones” and the impact they could have on english pay squeeze after Brexit, here is an interesting quote:
motherboard.vice.com/en_us/article/ypw8ww/beyond-foxconn-inside-shenzhen-the-worlds-gadget-factory
«Many companies like TCL are now in fact outsourcing their manufacturing to other nations. As we leave the visitors center, Katharine shows us a bank of TV screens that display feeds from their other production lines around China and Asia and, to my surprise, their new factory in Poland.
As an EU citizen, I was shocked to learn a Chinese TV manufacturer is outsourcing labor to a Eurozone country, but TCL is not the only one. Poland has an astonishing 14 SEZs, many of which house Chinese manufacturing.
Reports claim that workers earn as little as €350 a month, far less than the average EU income of €1,916 a month.
And it’s not just Poland. Belarus has a huge SEZ, called the China-Belarus Industrial Park, and, recently, German industrial leaders suggested that Greece should open China-friendly SEZs in order to ease its ongoing financial crisis.»
That’s the dream of “Britannia Unchained”, with the english upper class getting large, easy, incomes as the “butties”, “foggers”, “gangmasters” of the english workers on behalf of chinese and other offshorers.
TV sets aren’t the only outsourcing coming back. Some Indian computer companies now offshore their work back to the UK (or other European countries).
Lots of people in manufacturing earn decent wages. If on leaving the EU we get companies in SEZs paying peanuts we will be able to ask our politicians why we have imported jobs that pay so little, and they will not be able to give “EU rules and single market” as an excuse.
“Lots of people in manufacturing earn decent wages. If on leaving the EU we get companies in SEZs paying peanuts we will be able to ask our politicians why we have imported jobs that pay so little, and they will not be able to give “EU rules and single market” as an excuse.”
Brilliant…and that is why Brexit is so imporant…no longer will the scum in the HoC be able to hide behind the EU….
I don’t think Simon Wren-Lewis was giving you a ticking off – merely disagreeing with you. This may seem a small point but in so many blogs and comment areas civilised disagreement (with the hope of eventually getting closer to the truth) is unknown. It seems to me to be a good idea to use language that accepts that this can happen.
On the substantive point, I would tend to agree with you. I think that the degree of effective unionisation of the work force is likely to have some effect on the distribution of national income between wages and profits. I do not doubt that many other factors are involved in the dire situation in the UK but I would have thought that encouraging union leaders to be a bit more outward looking and countering some of the blatant anti union propaganda that we get so much of would be one way to improve things. Changes in employment law are probably also needed.