Unfair to Middling:
How middle income Britain's shrinking wages fuelled the crash and threaten recovery
A ToUChstone Extra report by Stewart Lansley
The TUC Touchstone pamphlet Life in the Middle, published in May, showed how Middle Income Britain, a group that was one of the main winners from early post-war trends, found itself on the losing end of a 30-year long wave of sweeping economic and social change. Since the late 1970s, middle Britain has been left increasingly behind in the battle for the spoils of rising prosperity. The professional middle classes have enjoyed a more rapid rise in living standards than those in the bottom 60 per cent of the income distribution, while the super-rich have secured a personal wealth boom on a scale not seen since the end of the nineteenth century.
As middle income Britain has slipped behind the super-rich, the rich and the merely affluent, new income, wealth and opportunity gaps have opened up. As a result, Britain today is a society increasingly divided between the top 40 and the bottom 60 per cent. As a result, the social map of Britain has changed to an onion shape with a small super-elite of the very rich, a minority group of the affluent and a large bulge below the middle.
This report examines three key economic factors that have left middle- and lower-income Britain in the slow-lane of rising prosperity.
- First, the 'profits squeeze' that helped to define the 1970s has been replaced by a sustained 'wage squeeze' in which low and middle earnings have been rising more slowly than productivity.
- Secondly, this new squeeze has been compounded in its impact by another long term economic trend: the increasing concentration of the earnings pool at the top.
- Thirdly, alongside Britain's increasingly low wage, unequal economy, there lies another important and increasingly entrenched trend - a slackening in the employment opportunities open to those on middle and lower earnings.
Moreover, these trends are likely to persist. Despite claims that we are in the throes of a largely middle-class recession, the main losers from the current downturn are middle and lower income groups. This is now being accepted by the government. As Gordon Brown told this year's Labour Party conference:
When markets falter and banks fail it's the jobs and the homes and the security of the squeezed middle that are hit the hardest. It's the hard pressed, hard working majority - the person with a trade, the small business owner, the self-employed. It's the class room assistant, the worker in the shop, the builder on the site.
These post-1979 changes have moved the economy from one set of damaging imbalances to another. Although the trends all have their own set of explanations, they are also closely inter-linked. The falling wage share has itself led to widening inequality while driving higher levels of personal debt. The rising earnings gap has, in turn, contributed to declining levels of labour market mobility. Britain's low wage, unequal economy has also been an important contributory factor behind the exploding financial imbalances that led to the credit crunch and the subsequent recession.
- argues that the declining share of wages and rising share of profits has been a key contributing factor in the increased concentration of wealth of the last 25 years, fuelling in turn the asset bubbles that led to the recession.
- shows how the negative impact of the falling wage share has been intensified by the increasing concentration of earnings in the top third of the distribution.
- examines the factors that have driven the falling share of wages, the hollowing out of the middle, and the widening dispersion in the distribution of earnings.
- reveals that disadvantage in access to secure jobs is not just confined to the low paid, unskilled and under-educated but extends further up the pay and educational scale to embrace those on and around median earnings.
- examines the impact of the recession on the pattern of labour market disadvantage. Despite the widespread belief that we are experiencing a largely white collar recession, the risks of unemployment remain much higher for lower and middle paid groups.
- identifies the wider economic gains to be had from rebalancing the economy by ending the persistence of Britain's low and unequal wage economy.
Issued: 12 November, 2009