How to Boost the Wage Share - Touchstone pamphlet #13

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British workers are experiencing the longest fall in real wages since the 1870s. Prices have been rising faster than earnings since 2010. People in work are thousands of pounds a year worse off as a result. Whatever statistic is seized on to tell us the recovery has begun, this does not feel like an economic recovery. Rather we seem stuck in a prolonged living standards crisis.

But the great wage squeeze is nothing new. It began well before the crash. Wages for average workers stagnated between 2003 and 2008 - and that was when the economy grew by more than ten per cent. The share of national income paid out as wages has been falling for three decades. And we should never forget that in the years before the crash, households were encouraged to borrow to keep up their living standards. This not only contributed to a big build up in household debt that helped cause the crash, but has also made recovery so difficult ever since.

It is good to see that politicians of all parties are now talking about the need to relieve the squeeze on living standards.This pamphlet provides an outline of the policies needed to do that. It may not work as a phrase on the doorstep but 'practical predistribution' is what we need. And to make it work collective bargaining must be at its core.

Stewart Lansley and Howard Reed show how a number of medium term policies can start to deliver. A more generous minimum wage, an increase in the coverage of the living wage, an extension of collective bargaining through new modern wages councils and a reduction in unemployment can all boost the wage share. But they are right to say that reversing a three decade trend cannot be done overnight. Paying many people more to do the jobs that they currently do can make a start, but we also need to rebuild and rebalance our economy to create many more high skill, high wage jobs using all the tools of industrial policy and active government.

A minimum wage was a major advance for the UK. But while we certainly need to do more to boost the wage floor, we also need to secure fairer and better pay for those in the middle. For too many years public policy has only been concerned about those at the bottom, with an unspoken assumption that keeping wages down for everyone else was almost always a good idea. But while employers might want to strike a tough bargain with their own workforce, it is just as much in their interests to have customers with money to spend. Wage led growth is central to a long-term recovery.

Britain needs a pay rise, and this pamphlet starts an important discussion about it can be delivered.

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