date: 7 December 2012
embargo: 00.01hrs Monday 10 December 2012
Rising financial profits have reduced workers' wages and squeezed profits across the rest of the economy, according to a new TUC report published today (Monday).
The TUC touchstone extra report - Where have all the wages gone? - examines why salaries have been falling for the last 30 years, where the money has gone and what this means for the economy.
The report shows that over the last 30 years the share of national income going to wages has fallen from 59 to 53 per cent. Over the same period the proportion of GDP going to profits has increased from 25 to 29 per cent, while the share of income spent on taxes and subsidies has been broadly consistent at around 11 per cent.
The falling share of national income going on wages, combined with growing pay inequality, has left workers on median incomes £7,000 worse off per year, according to the report.
The main reason for the changing share of gains from economic growth has been the decline of industries that spend a high proportion of turnover on wages, such as manufacturing, and the expansion of new industries that have a far higher profit margin, such as financial services.
Where have all the wages gone? shows that the entirety of the rising profit share across the UK economy has gone to just to one industry - financial services - which has increased its share of total UK profits from 1 per cent in 1980 to 15 per cent today.
The success of financial services has come at the expense of both workers and other industries, which have not gained sufficiently from the UK economy doubling in size since the late 1970s, says the TUC.
The report also looks at the wider economic impact of changes in the wage and profit share within GDP. While falling wages have increased inequality and led to rising personal debt, the expected wider economic benefits of the rising profit share have not materialised.
Since 1975 there has been a negative correlation between the profit share and level of business investment, while expenditure on research and development has also been falling since the mid-1980s.
The fact that money taken from workers' pay packets is not being invested into businesses and instead is going straight to shareholders is damaging the economy and must be addressed, says the TUC.
While the growth of the City has reduced workers' wages, stunted business investment and squeezed non-financial business profits for the last 30 years, it is its role in causing the global financial crash that has created a new political consensus around the need to rebalance the UK economy, says the report.
However, in recent years financial services' share of national profits has continued to increase. If the government is serious about rebalancing the economy it needs to curb the rise of City profits and so encourage other industries to grow, even if it means lowering the tax take in the short term, says the TUC.
The TUC report shows that rebalancing the economy would not only make the UK better prepared for future financial crises, but would also deliver real benefits to workers' wages and to non-financial firms too.
The fact that the wage share within industries has remained constant also offers hope that a renaissance in sectors like manufacturing, engineering and construction could raise people's wages once again, says the TUC.
TUC General Secretary Brendan Barber said: 'The falling share of economic growth going on wages over the last 30 years, combined with widening pay inequality, has left the average worker £7,000 a year worse off today.
'You'd expect business owners across the UK to have benefitted from the tens of billions of pounds lost from people's pay packets. But instead the entirety of those lost wages have simply lined the profits of financial firms.
'While rising City profits has been good news for a small number of shareholders and the Treasury tax-take, it's been a disaster for the wider economy. The City's hoarding of profits has stifled other industries, reduced business investment and made all but a tiny rich clique of the UK workforce worse off.
'Everyone now agrees we need to rebalance the economy. But the main ways to achieve this - rising investment, more high value manufacturing and engineering, and faster growth in new creative industries - are all being held back by the continuing dominance of the City.
'If the government really want a more balanced economy that all workers and businesses can benefit from they need to be more courageous in standing up to the City. Ministers mustn't forget that financial firms did more to cause the crash than any other industry, and will block any reform that weakens its influence.'
NOTES TO EDITORS:
- Where have all the wages gone? is available at http://bit.ly/TDMXCw
- All TUC press releases can be found at www.tuc.org.uk
- Follow the TUC on Twitter: @tucnews
Liz Chinchen T: 020 7467 1248 M: 07778 158175 E: [email protected]
Rob Holdsworth T: 020 7467 1372 M: 07717 531150 E: [email protected]
Alex Rossiter T: 020 7467 1337 M: 07887 572130 E: [email protected]
Issued: 10 December, 2012