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date: 10 November 2009

embargo: 00.01hrs Thursday 12 November 2009

Middle Britain's shrinking wages helped cause finance crash

A growing pay gap - particularly between middle income Britain and the super-rich - was a crucial but overlooked ingredient in the financial crash, according to TUC research published today (Thursday).

The share of national wealth going to wages has been in sharp decline, peaking at 65 per cent in 1975 but now down to 53 per cent, with a greater proportion going to the prosperous middle classes and super-rich. In contrast the profits share has been rising.

The TUC Touchstone Extra pamphlet Unfair to Middling: How Middle Britain's Shrinking Wages Fuelled the Crash and Threaten Recovery shows how the falling wage and rising profit pool has caused two serious imbalances in the economy:

• To maintain living standards, those falling behind on the wages front borrowed more than they could afford, contributing to the credit crunch. Average household debt grew from 45 per cent in 1980 to 157 per cent in 2007.
• Much of the rising profit share was used for financial speculation rather than productive business investment, helping drive the UK's over-reliance on finance and fuelling the unsustainable asset boom.

The report argues that a sustainable recovery over the long term will require this imbalance to be put right. Wages should return to the stable 58-60 per cent of output of the three decades after the Second World War, the report says.

Middle income earners - the real middle Britain earning median incomes around £22,000 a year - have been doubly squeezed as:

• Their wages have fallen behind productivity. Since 1980 their wages have risen by 1.6 per cent a year, while productivity has been growing by 1.9 per cent a year.
• They have also been hit by growing inequality as the better off have grabbed a growing share of wages. From 1978-2008, real earnings at the 90th percentile doubled while real median earnings grew by 56 per cent and those at the 10th percentile by only 27 per cent. The report shows that some groups of workers, from fork-lift truck and bus drivers to bakers and low skilled factory workers, have enjoyed little rise in real earnings at all.

TUC General Secretary Brendan Barber said: 'Many have tracked the role of finance and speculators in causing the crash, but few have asked where they got the money and why so many needed to borrow so much.

'The truth is that ordinary families have had their wages squeezed and have had to borrow money which should have been part of the wage packet instead.'

Today's report follows on from the TUC Touchstone pamphlet Life in the Middle: the Untold Story of Britain's Average Earners, published in May, which showed that over the last 30 years median earners had been on the losing end of a long wave of sweeping social and economic change.

While the super-rich secured themselves a personal wealth boom on a scale not seen since Dickensian times - a direct result of the rising profits share - those on middle incomes slipped behind in wages and living standards.

UK society is now increasingly divided between the top 40 and the bottom 60 per cent, the TUC says.

Stewart Lansley, author of the two reports, said: 'For the last 30 years Britain's low and middle earners have seen their pay and living conditions stall while the incomes of the affluent, the rich and super-rich have vastly outpaced them.

'We now have an increasingly unequal society with growing income, wealth and opportunity gaps.

' As the profits squeeze of the 1970s gave way to today's enduring and equally damaging wage squeeze, the British economy has became as much out of balance as it was in that decade.

'To build a sustainable economy, far less susceptible to asset bubbles and credit crunches, the trend of an ever shrinking wage pool needs to be reversed.'

NOTES TO EDITORS:

- Unfair to Middling: How Middle Britain's Low Pay Fuelled the Crash and Threatens Recovery is available at http://www.tuc.org.uk/extras/unfairtomiddling.pdf

- Life in the Middle: the Untold Story of Britain's Average Earners is available at www.tuc.org.uk/touchstone/lifeinthemiddle.pdf

- The TUC middlebritainometer - where people can find out how close their earnings are to those of the real middle Britain - is available at www.touchstoneblog.org.uk/middlebritain

- The characteristics of the real middle Britain. In terms of work, 45 per cent of median income respondents are in full-time employment and 19 per cent are in part-time work; 20 per cent are retired, while 12 per cent are unemployed or not working for health or other reasons. Those in work have a variety of jobs, concentrated amongst white-collar and skilled manual jobs, including; customer service administrators, dispatch clerks, retail managers, IT workers, landscape gardeners, site maintenance engineers, teaching assistants, librarians, receptionists and shop assistants.

- Visit the Touchstone blog at www.touchstoneblog.org.uk

- All TUC press releases can be found at www.tuc.org.uk

- Register for the TUC's press extranet: a service exclusive to journalists wanting to access pre-embargo releases and reports from the TUC. Visit www.tuc.org.uk/pressextranet

Contacts:

Media enquiries:
Liz Chinchen T: 020 7467 1248 M: 07778 158175 E: media@tuc.org.uk
Rob Holdsworth T: 020 7467 1372 M: 07717 531150 E: rholdsworth@tuc.org.uk
Elly Brenchley T: 020 7467 1337 M: 07900 910624 E: ebrenchley@tuc.org.uk

Press release (900 words) issued 12 Nov 2009