TUC propose ideas to close Britain’s £85bn wage gap

The share of the economy going to wages fell by more than five per cent between 1980 and 2011 – equivalent to £85bn in today’s money – while the sharp growth in inequality has meant that low and middle income earners have done even worse. But a new TUC pamphlet published today shows that new policies could close a quarter of this wage gap in the short to medium term, while in the longer term the creation of high-skill, high-wage jobs can close the rest. The TUC Touchstone pamphlet How to Boost the Wage Share says that there is growing evidence that increased wage inequality helped cause the crash and has hindered recovery.

It shows that the increased profits generated as the wage share fell did not result in increased investment, as free market economic thinking said it would. Instead, rising profits became concentrated in the finance sector through takeovers and financial engineering, with little wider benefit to the economy. But with international organisations such as the OECD and IMF now pointing to the need to increase wages to help secure renewed economic growth, the pamphlet – authored by economists Stewart Lansley and Howard Reed – argues that public policy should aim to raise the wage share from its current level of 55 per cent to 60 per cent, as it was in 1980 and during much of the 1950s and 1960s. While that cannot be achieved without restructuring the UK economy to produce higher skilled jobs, the pamphlet suggests a mix of policies can close a quarter of this wage gap more quickly:

• A modest increase in the national minimum wage to restore its 2009 level in real terms (£6.60 per hour compared to £6.19 today).
• New structures to create higher minimum wages in sectors that can afford them set through new tripartite structures and collective bargaining.
• The spread of the living wage though measures such as living wage zones.
• Extending collective bargaining and narrowing the pay gap between top and bottom in companies.
• Ensuring full employment to increase demand for labour.

The cumulative effect of these policies could boost pay packets across Britain by billions of pounds, says the TUC. Research published earlier this month by the TUC to launch its fair pay campaign found that pay packets across Britain had fallen by £52bn a year, compared to before the recession in 2007.

TUC General Secretary Frances O’Grady said: “Keeping wages down may boost profits in the short-term, but across the economy it does long-term damage as consumers have less money in their pockets. “With increasing evidence that the extra profits ended up enriching the finance sector, rather than driving investment or innovation, it’s time for politicians to set increased living standards as a clear objective. Boosting the minimum wage, introducing higher wage floors in sectors that can afford them and spreading collective bargaining can all make an immediate difference. In the longer term, the government needs to do more to encourage highly skilled, better-paid job creation. You can’t build an prosperous economy on low-wage insecure work. Britain needs a pay rise, and this is how to get it.”