Cost-of-living crisis about falling pay

Workers on low and middle incomes are experiencing the biggest decline in their living standards since reliable records began in the 19^th century. For the average worker, wages have fallen by £1,300 every year since the Coalition government took office in 2010.

But whether employed by public sector organisations or private companies, wage increases for ordinary workers have actually been on a declining path since the early years of this century. For those employed directly by the public sector, this general pattern is made worse by the government’s five-year pay freeze and cap, which union leaders have done nothing to oppose. As a result,  recent figures suggest that those working in the public sector are an average of £2,073 a year worse off than in 2010.

These stark findings on falling pay come from the New Economics Foundation, in a report commissioned by public sector union Unison.  It finds that falling pay has resulted in and compounds the worsening conditions of the low-paid:

• At least one in five workers in the UK economy earns low pay – too little to live on at £7.47 per hour or less, equivalent to £13,600 or less for someone working full-time.
• More than half of individuals, including children, living in poverty in the UK live in households where at least one adult is working.
• Low pay is a major problem in parts of public service. An estimated one million public service workers are on low pay, including health and social care workers, school staff and local authority employees.
• Growing numbers of public service employees are formally part of the private sector though paid for through taxes as outsourcing gathers pace. Evidence suggests that the shift from public to private can result in diminished pay and rights for workers with private sector discounting apparent for some occupations.
• Low pay is being compounded in the public services by the blight of zero hours in areas like social care.

As the report also shows, the proportion of low-paid workers (defined as those on 60% of the median income for the economy as a whole) rose from around 12% of the workforce in the mid-1970s to 20% by the mid-1990s, where it has stayed.  Moreover, the proportion of households which are poor despite having at least one working adult has been rising for a decade or more so that now in-work poverty outstrips poverty associated with worklessness.

What their figures show, but both the NEF and Unison ignore, is that low and falling wages are and have been essential to sustaining the economy throughout the credit-fuelled period of globalisation. And this applies whether we’re talking about the UK on its own, or as part of the world economy. The evidence from the UK is there to see in the report:

“Gross Domestic Product is the headline measure of benefits from economic activity. The two major components within this are compensation to employees (wages) and operating surplus (profits). Over the past 30 years the share of benefits received by workers in the form of wages has been falling. The wage share averaged 59% of Gross Domestic Product in the 1950s and 1960s and then peaked in the mid-1970s at 65.5%. From then it followed a gradually declining trend, reaching 53% by 2007. A temporary increase occurred in 2009 as the financial crisis hit business activity and profits but the share has since declined again to its 2007 level.”

So all One Nation Labour’s talk of a cost-of-living crisis disguises what has really taken place. There has been, and continues to be, a transfer of wealth from workers to employers in the shape of lower wages and higher profits. This has gone for decades, under successive governments and is the price workers are paying so that corporate-driven globalisation can sustain itself.

When the ConDems talk about austerity lasting into the distant future, this is what they mean. They are waging a one-sided class war while union leaders sit on their hand hoping that the election of a Labour government will improve their members’ prospects. Fat chance!

Gerry Gold

Economics editor

Wages plummet in global race to the bottom

Despite massive state intervention, including two interest rate reductions and huge injections of credit, the Chinese economy has been unable to withstand the consequences of global overcapacity.

The  contraction in China’s immense, globally-significant manufacturing sector is recorded by two, complementary  measures. HSBC, the global financial conglomerate, measures activity in the smaller, private firms, and its index has been in contraction territory for ten months in a row.

Last month the official government-maintained measure of manufacturing activity, focussing on big state-owned firms which have been heavily supported by government spending on infrastructure, fell to a lower-than-expected 49.2 in August.

The impact of the growing Chinese downturn is being felt sharply in the United States. In August, manufacturing activity shrank for the third month in row. The Purchasing Managers’ Index recorded that new orders – an indicator of future demand –  fell to 47.1 from a reading of 48 in July.

Anything above 50 indicates expansion. Below 50 means contraction. August’s figure is the lowest since the depths of the post-crash recession in April 2009.

Looking deeper we discover that In the US manufacturing comprises only 12% of economic activity, and its continuing growth has been founded upon a drive to lower wages.  

Millions of relatively well-paid skilled jobs were lost following the crash as unemployment soared to be replaced by a much smaller number of low-paid workers in the service sector.

A new report from the National Employment Law Project shows that companies in the United States eliminated about 8.1 million jobs after the recession began in late 2007. The economy has since recovered only about 3.3 million of those jobs, starting in early 2010..

During the recession, employment losses occurred throughout the economy, but were concentrated in mid-wage occupations. By contrast, during the recovery, employment gains have been concentrated in lower-wage occupations, which grew 2.7 times as fast as mid-wage and higher-wage occupations. Specifically:

• Lower-wage occupations were 21%  of recession losses, but 58% of recovery growth.
• Mid-wage occupations were 60% of recession losses, but only 22%  of recovery growth
• Higher-wage occupations were 19% of recession job losses, and 20% of recovery growth.

In the US unemployment benefits cease after 23 months and many workers either disappear off the employment statistics altogether or are forced into low-paying jobs. James Paulsen, chief investment strategist at Wells Capital Management sums it up very bluntly: “The cost of labour is very cheap,”

Whilst cheap labour is good for short-term profit, which is reflected in the results of US corporations in particular, in the longer term it adds another twist to the downward spiral. This is because the decline in real incomes, which is being felt throughout the world, results in weaker demand.

According to Ethan Harris, co-head of global economics research at Bank of America Corp in New York, the proliferation of “very distressed workers” hurts consumption, which, he estimates is likely to increase just 1.5% in the next six quarters.  

But the drive to lower wage costs is just as relentless as the global manufacturing contraction and workers in the US and Europe face further attacks in the competitive drive to the bottom.

Foxconn Technology Group's is the main manufacturer of Apple products like the hugely successful iPads and iPhone, and Apple became the world’s most valuable company ever in August surging to $624 billion in market value.

The company has been criticised for factory conditions in China resulting in a series of deaths and suicides. Foxconn is now investing $10 billion in Indonesia where manufacturing wage costs are 60% percent of China's. Just think of that the next time you use an ubiquitous Apple product.

Gerry Gold

Economics editor

Market and capitalism go hand in hand

Bit of a shock to the system when I read a press release from the Trades Union Congress this morning that attacks “the embrace of market capitalism by successive governments”.

But before you get too excited, the TUC is not actually suggesting that we should replace capitalism – just the “market” bit of it, as if you could do one without the other.

The radical language from Congress House is in connection with a new report about the decline over the last 30 years in the level of wages paid to millions of low and middle income earners.

Britain’s Livelihood Crisis by Stewart Lansley is a well-researched pamphlet about the development and consequences of corporate-driven globalisation. He shows that wages have been falling sharply as a share of the national wealth since the mid-70s. The share of national output accruing to wage-earners fell from a peak of nearly 65% in the mid-1970s to as little as 53% by 2008.

“Moreover, this collapse in the wage share has been borne most heavily by the middle and lower paid, leading to a sharp rise in earnings inequality. Some unskilled and semi-skilled jobs now pay little more in real terms – and in some cases less – than they did in the late 1970s,” he writes.

A rich minority have been taking an ever larger slice of the UK's dwindling earnings cake. The top 10% have seen their pay increase almost twice as fast as median incomes, and nearly four times faster than the lowest 10%. The real wages (adjusted for inflation) of medical practitioners (+153%), judges, barristers and solicitors (+114%) have more than doubled since 1978, while those of bakers (-1%), forklift truck drivers (-5%), packers and bottlers (-3%) actually fell.

The growth of poorly paid work is illustrated by the proportion of workers whose wages are at least a third less than the median (currently £11.09 an hour). This figure has almost doubled in the last three decades from 12% in 1977 to 22% in 2009.

What Lansley calls the “experiment in market capitalism”, promoted by Thatcher and then New Labour, promised that all citizens would be better off through an expanded economic cake. But it brought slower economic growth, renewed instability and three deep-seated domestic recessions. He warns:

The livelihood crisis and economic instability are now locked together – via soaring inequality – in a dangerous economic vicious spiral. This is because the rising concentration of wealth, driven by the collapsing wage and rising profit share, has not only led to the declining opportunities that underlie the livelihood crisis, but has also contributed to economic fragility. As relative wages fell and purchasing power sank, personal debt soared: as the newly inflated fortunes were turned into giant speculative bets, asset prices boomed. Hence the twin triggers of the credit crisis set in motion by the market experiment.

The analysis may be sound but the suggested remedies are totally inadequate. We have not lived through an “experiment” but a new phase of corporate-driven capitalism that emerged out of the wreckage of the collapse of the post-war system of regulation that collapsed in 1971. This was a not a policy decision but the response to a collapse of controlled expansion.

Capitalism broke free of these bonds because the drive for profit required the export of capital, the lowering of wages at home, the creation of new markets and a financial system that matched the globalisation drive. TUC general secretary Brendan Barber wants the an end to the “discredited model of market capitalism” and for a “prioritising of a fairer distribution of new wealth and jobs”.

That is simply not going to happen under this or any other government you might want to elect. Because not only do we have market capitalism, we also have a market state in which the political system is inextricably linked to big business and finance in thousands of ways.

The so-called experiment requires the termination of the capitalist system itself – both the economic and political sides of that debased coin. The system is unsustainable, driving millions into poverty and isn’t working. Reform is simply out of the question.

Paul Feldman

Communications editor