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There’s Only One Answer to Low Wages: Trade Unions

Despite rising job vacancies, employers are refusing to increase wages after more than a decade of stagnation – the only alternative to permanent low wages is for workers to unionise.

Millions of workers across retail, hospitality, entertainment and other consumer-facing sectors have returned to work this week as lockdown eases in line with the government’s timetable. Yet some employers are concerned that they’re unable to find enough workers to meet rising demand.

Vacancy figures have risen 18 percent since March, with the total number of vacancies now approaching one million. The combination of Brexit and the pandemic has led to large scale migration out of the UK, and particularly out of London, making it harder to find workers. According to one estimate, the population of London has fallen by 700,000 since the start of the pandemic.

But another reason these posts are going unfilled is that employers are refusing to raise wages to attract new workers. You might argue that as we emerge from a pandemic that has severely hit these business’ bottom lines, they cannot afford to raise wages. But wages were already far too low when the pandemic started, having stagnated since the financial crisis.

Many of the large businesses looking to recruit have been criticised for the way they have treated their staff in the past. McDonald’s and Wetherspoons workers in the UK, for example, went on strike over pay and conditions in 2017 after joining the Bakers, Food and Allied Workers Union, winning the biggest pay rise in over a decade.

Ultimately, like McDonald’s in the US, hospitality and retail firms are likely to have to raise wages somewhat to tempt workers back when the pandemic finishes. But wages are unlikely to rise enough to compensate workers for years of stagnant pay.

And while workers in some sectors are being offered higher wages, those in others are being subjected to the appalling practice of ‘fire and rehire’, in which companies force workers out before hiring them back on precarious contracts at much lower wages.

What’s more, many macroeconomists suspect that inflation will rise at its fastest rate in years as the world economy re-opens. With production so globally integrated, anything but complete global recovery from the virus will create challenges for producers all over the world.

But with the Global North recovering far faster than the Global South thanks to the latter’s hoarding of the world’s vaccine stock, wealthy consumers who have saved up billions over the pandemic will soon be returning to shops and restaurants, boosting demand. The gap between demand and supply will be met by rising prices.

To make matters worse, companies are reportedly ‘panic buying’ the inputs they require for production, expecting that the ongoing spread of the virus throughout the Global South will compromise their supply chains. ‘Shortages, transportation bottlenecks, and price spikes’ have been the inevitable result.

Low-paid workers, like those in retail and hospitality, will be the ones who suffer most from rising prices. Consumer price inflation will likely eat into workers’ real wages, meaning that even small wage increases today will be worthless in just a few months’ time.

Yet policymakers’ only response to this challenge—raising interest rates—will hurt these workers just as much, given that many of them are reliant on debt to make ends meet. Before the pandemic, eight million families were struggling with some form of problem debt.

Even with central bank rates so low, many of these workers are still paying usurious interest rates in an oligopolistic financial system that charges the less well-off far more to borrow, knowing they have nowhere else to go.

At the same time, central banks’ focus on maintaining and even raising asset prices in the face of any potential financial instability is increasing the wealth of those at the very top. There are nearly 500 new billionaires on Forbes’ world billionaire list this year, partly due to a roaring stock market catalysed by the asset purchases of the Federal Reserve.

The fiction that supply and demand in the labour market is the main determinant of wages has been dealt a fatal blow by a decade during which employment reached its highest levels ever and yet wages stagnated. The long-term decoupling between wages and productivity evident across many advanced economies but clearest in the US provides more evidence that the neoclassical theory of wages is defunct.

Over the short to medium term, bargaining power—determined by a whole range of factors, not simply supply and demand for labour—is the most important determinant of pay. The reason for the decoupling between employment and productivity is the neoliberal assault on the labour movement evident all over the world since the 1970s.

If workers are to achieve wage increases in line with inflation—let alone recover from a decade of wage stagnation—they must unionise. There is a robust relationship between union density and the labour share of national income across many countries; the UK’s unions are currently some of the only organisations campaigning against fire and rehire.

There is some positive news on this front: last year several UK unions reported that membership was stabilising, or even rising, after years of decline.

Over the long term, of course, most capitalist economies struggle to cope with high rates of unionisation – arguably, crushing the power of organised workers was the main impetus behind the neoliberal turn in the first place.

It’s not simply that workers organised into unions have the power to demand higher wages, better conditions, and more worker-friendly regulation; it’s that they have the power to disrupt capitalist production and potentially even vie for control over the capitalist state.

Even if union density continues to recover from its historic lows, it will take decades for the working classes to recover the power they held half a century ago – and the state is likely to step in and prevent such an outcome before they even come close.

But it is also quite clear that without a much bigger and more vocal labour movement, low wages in the rich world—where consumption accounts for a disproportionate share of demand—will compromise the recovery. Policymakers have a choice between ongoing stagnation or supporting workers to organise.