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

'Recovery' based on low pay and falling living standards

Most people in Britain are struggling to make ends meet. Talk of a “recovery” is designed to deflect mounting discontent, but the everyday lived experience is proving more powerful.

The authors of Low Pay Britain 2013 introduce their findings with the prevailing approved optimism: “As we enter a new phase of economic recovery, the key question for the coming years is whether or not renewed jobs growth will help to reverse or reinforce the apparent longer-term shift towards a two-tier workforce.”

But the statistics they provide tell a different story: one in which the faintest signs of “recovery” are founded upon low and declining wages and living standards, and sharply increasing inequality – just as in the pre-crash period of economic growth.   

Though the report provides none of the context, the policy-enhanced impact on British workers of the power of global corporations to drive down wages during the last quarter of the 20th century can be seen in a single statistic. The report notes:

“From a low of just 15 per cent of employees in 1975, the proportion of low paid workers peaked at 23 per cent in 1996. Since then, the proportion has changed very little  – as at April 2012 the number stood at 5.1 million, or 21 per cent.”

The share of overall value generated in the economy that flowed to workers fell in the credit and debt fuelled period of expansion before the 2007 crash. An increasing share was delivered in the form of profits to shareholders and to those at the extreme top end of the pay scale.  

Policy measures adopted to deal with the impact of the global crash of 2007-8 have ensured that cost of living pressures and low earnings growth combined to form a wage squeeze across the entire earnings distribution.

Since 2009, the number of workers earning less than a living wage – the amount considered adequate to achieve a minimum standard of living – has rocketed, from 3.4 million to 4.8 million in April 2012.

The earnings squeeze of recent years has meant that increasing numbers of workers have found it hard to get by on pay alone. There’s been a gradual rise since the mid-1990s in the proportion of families in poverty in which at least one person is in work.

The median salary in Britain is now estimated to stand at around £21,300, some £3,300 lower than its peak in 2005-06. And projections show no signs of recovery in the medium-term.

By the end of the forecast period in 2017-18, median pay is set to amount to £21,200, still significantly lower than the level recorded at the turn of the century.

Just as the pre-crash period of  “growth” was founded upon worsening conditions for the majority, any signs of post-crash “recovery” are dependent upon low pay, sharp reductions in living standard, and an increased dependence on declining state benefits. 

Unemployment figures have been kept low relative to much of Europe through the growth of part-time working, zero-hours contracts and self-employment. The numbers of self-employed have risen sharply since the crash – but their reported income dropped by £4000 - 28% - between 2001-02 and 2010-11 putting them amongst the lowest earners.

Far from offering any hope, general wage stagnation has meant that growing numbers of workers over the last decade have found that being in work no longer guarantees economic security.

British workers are not alone. Low paid work is a feature of labour markets in all advanced economies and, in part, the growth in wage inequality and therefore in relative low pay that Britain experienced in the 1980s and 1990s was common to much of the developed world in the final quarter of the 20th century.

But Britain continues to stand out as having one of the highest incidences of low paid work in the richer, OECD countries. Workers in Britain are twice as likely as counterparts in Italy and five times more likely than employees in Belgium to earn below the low paid threshold.

Welcome to cheap-labour Britain, where the corporations and the state work hand-in-hand to enhance a capitalist economy based on super-exploitation.

Gerry Gold

Economics editor