Wages and the economy

There is a focus on wages in the media today following Ed Balls performance at the TUC, John Swinney on Scottish pay policy and the launch of the Scottish Youth Parliament’s Fair Wages campaign.

Ed Balls rightly got booed by delegates at the TUC after a UNISON delegate asked him about public sector pay. As UNISON General Secretary Dave Prentis, said “if Mr Balls really understood the impact of three years of falling wages on struggling families he too would be calling for an end to the pay freeze."

Scottish unions met Ed Balls earlier this year on this very subject and UNISON Scotland tabled a critical motion at the Scottish Labour Party conference. While Ed Balls may get the fairness point, that is overridden by his political strategy. He wants to sound tough and credible on the economy and public spending. There are shades of his mentor here in the early years of the last Labour UK government. 

There are two problems with this approach. Firstly, it is a flawed political strategy because it undermines Labour support amongst a key voting group. Secondly, the economics are flawed, as cuts in real wages are a major cause of the current recession. A point I will return to.

As for John Swinney’s pay policy, including a “modest” 1% increase, no one can accuse John of being overstated! As I am quoted in the Herald this morning, "He did use the phrase modest, and I suppose 1% does come into that category. The truth is that the Scottish Government position has mirrored the UK position on public sector pay at every stage."

 

The Scottish Government does claim a social wage somehow tops this up. The no compulsory redundancy commitment is a serious element of that, but a regressive Council Tax freeze is not. Plus the pay policy and the redundancy pledge hasn’t been applied to the largest group of workers in local government. They didn’t get even the paltry £250 underpinning last year.

Let’s return to the economic argument for wages I put to Ed Balls earlier this year. I did say to him, rather pointedly, “that I thought he understood economics, but I now have my doubts”.  The facts are that since the start of the 1980s, the share of the economy going to wages has shrunk. Those with the highest salaries have done better than those below them and as a consequence average workers now get a smaller section of a smaller pie. The latest TUC research puts this wage gap at £7000 per year.

 

As the TUC paper says this is not just unfair, but bad for the economy as it holds back growth.

“Companies need customers with cash in their pockets. That is why the UK economy is scraping along the bottom. Employees are cutting back as their living standards are squeezed. And the public sector, far from making up the gap, is slashing spending too. But this wages squeeze was a prime – or should we say sub-prime – cause of the crash. Excess profits and bonuses went into the finance system rather than new investment. Workers deprived of proper pay borrowed to make up the difference. And when bankers stopped considering risk before lending, we had started the inevitable slide to the global crash.”

I will end this blog on a positive note. The Scottish Youth Parliament today launches their Fair Wages campaign that supports the Scottish Living Wage. An important part of this is to extend the living wage into the wider workplace and government procurement will be an important part of that. Young people in Scotland get it - sadly politicians have some catching up to do.

We all have an opportunity to make the point loudly on 20 October in Glasgow, when we march for a Future That Works.