03 July 2013

Higher wages, great employment levels and collective bargaining is the first step towards a new, stronger, economy, a new Trades Union Congress (TUC) report argues.

The document - How to Boost the Wage Share - is part of the TUC's Touchstone Pamphlet series and is authored by Visiting Fellow at Bristol University Stewart Lansley and Howard Reed, Director of the economic research consultancy Landman Economics. The authors propose that increasing the salaries of UK citizens through a higher National Minimum Wage and an extension of the Living Wage is essential for future growth. Collective bargaining is key to this, the writers added, as it has an important function in maintaining higher-level wages for workers across the UK.

However, this is just the first step. Alongside better wages and more jobs, Britain's economy needs to shift substantially towards industries that can support higher-paid roles in order to prevent further inequality - a process termed 'predistribution'. To achieve this, the authors recommended:

1. measures aimed at raising the earnings floor for those currently in work
2. measures aimed at capping excessive rewards at the top
3. measures aimed at increasing the extent of collective bargaining and workplace participation
4. a new central commitment to policies that create full employment
5. longer term measures aimed at reversing the recent trends towards a low pay economy

The need for a "social contract", as Lansley and Reed termed it, is underpinned by evidence showing the economic crash of 2008 was not the beginning of falling living standards for many workers. Despite a booming economy, wages had already stagnated between 2003 and 2008. Decades before this, in the early 1980s, the share of output going to the poorest half of the workforce began to fall sharply and has ever since. This phenomenon is partly due to the financialisation of the economy following significant deregulation in the financial sector, as well as a weakened power for trade unions to negotiate collective agreements, the authors argued. As a result, several trends have emerged, including a fall in the share of output distributed through wages, and a widening pay gap between the rich and the poor due to much quicker rises in salary being seen in the top decile than at the bottom. We now find ourselves suffering the longest fall in real wages since the 1870s, and the financial crisis alone cannot account for the resulting slump in living standards. Without effective measures to reduce the earnings gap through capping excessive pay at the top and encouraging higher pay for those on the lowest incomes, the economy will never truly recover, the authors claimed.

In an introduction to the report, General Secretary of the TUC Frances O'Grady said: "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."

Read the full report here