The Resolution Foundation report on squeezed household incomes should prompt Britain to recast the way it does business
The central claim of the shattering new Resolution Foundation report is that hard times are here to stay. It points to such an enduring squeeze on families of moderate means that towards the end of this decade, they will still be worse off than they were at the start of the last.
You can take a stroll through a few of the charts for yourself with our interactive guide, but the logic that knits them together is dismayingly watertight. Men’s wages have already been squeezed for years on end, and not just for those at the bottom of the heap – with even middle managers now being worse off than they were a decade ago. The Occupy slogans that pit the 99% against a 1% plutocracy appear frighteningly close to the mark. Over the noughties, tax credits were increasingly used to top up inadequate wages, but these are now being snatched away. That leaves everything resting upon the wages that women bring home, but hopes of them increasing are fading because costly childcare and changes to welfare policy are conspiring to mean that work doesn’t pay.
Of course all of this is about the recession, but it is about something deeper and more enduring too. The nightmare in prospect is of an economy which does (eventually) stagger back to life, but continues to fail to provide any gains for its workers. If that sounds fanciful, then be aware that reward-free growth has long been a reality in the US. Between 1973 and the end of the noughties, the output produced by each hour an American worked had more than doubled, but the pay packet of a median working man was a couple of thousand dollars lighter at the end of this 40 years of “progress” than it was at the start. The traditionally underpaid American woman continued to make progress for most of that time, but since the millennium pickings have been slim for her as well.
This siphoning of the proceeds of growth away from every sort of worker, excepting those at the very top end, is much more than some passing product of the slump. It is a structural problem that cries out for a structural remedy.
The Resolution Foundation has a few specific proposals that might usefully boost the scope that families have to earn . In particular, it proposes 10 extra hours of childcare for the cut-price charge of £10, together with tax reforms to encourage workers in their 50s and early 60s to slog away for a little longer. Both suggestions would help, although footing the cost by taking on better-off pensioners underlines the political obstacles in the way. Pretending that there is an easy way to give everybody a pay rise is plainly daft. I think that these really big questions, about who gets what, require serious intellectual spadework – and an escape from the strictures of an outmoded economic science that has endured such a dismal crisis.
Policy needs to identify sectors that provide jobs with prospects, and to promote these over others that fail to make work pay. Ed Miliband’s hankering for principled over predatory capitalism is not a bad starting point, but he still has an awfully long way to go in explaining convincingly where he would draw the line between the two – and still further to go in developing a comprehensive plan to promote good over bad business.
The Resolution Foundation is interested in setting sector-specific minimum wages in different industries. Thus, for example, banks might be able to afford to pay their cleaners more than high street shops; if so, is it reasonable to mandate a higher minimum for them? A hundred years ago a young reforming Liberal, Winston Churchill, backed the introduction of industry wages council, arguing that “without such a system the good employer would be undercut by the bad and the bad employer would be undercut by the worst”; the coalition, however, is currently set about abolishing the last surviving wages council.
So perhaps new sector-specific minimums are part of the answer. More fundamental, however, is recasting the way in which we do business. Forthcoming research by the economist Richard Freeman and colleagues suggests that the gap between wages in different companies has proved at least as important in powering inequality as any increase in the spread of wages within them.
If there is a tendency for wages to cluster within individual firms, but to diverge between them, outsourcing is likely to make things worse. A boss on some astronomic pay packet may be held back by shame from paying his cleaners too little relative to that, but emotion will not get in the way of ruthlessness if the process all takes place behind the veil of some corporate contract. Campaigns such as the living wage have succeeded by bringing human emotion back in to the market – and making poverty pay an issue of shame. If we are really serious about low pay, perhaps we should ensure that shame cannot be outsourced, by clamping down on contracting out.
That is only one unorthodox thought. After the great scale of the great stagnation on pay which has been revealed, surely there is an onus on all of us to think big.
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