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Pay Down, and Everything Else Up? Join a Union

While the Treasury talks about scrapping caps on bankers' bonuses, real wages in the UK fell 2.9% last year. The only way to change it: build trade union power so workers can bargain for better.

Those on zero-hour contracts and those who are falsely self-employed—often in the gig economy—may report being in full time employment but may not be able to work as much as they would like. (Getty Images)

As our media has been bringing us uninterrupted coverage of Buckingham Palace over the last few weeks, most people could have been forgiven for missing the latest OECD report on wage growth over the last year. The UK was one of the worst performers out of all advanced economies, seeing a 2.9% drop in real wages between 2021 and 2022.

This news comes on the back of another OECD report from a few years ago, which showed that wage growth for UK workers in the decade after the financial crisis was the worst of all advanced economies bar Portugal, which had been struggling through the Eurozone debt crisis.

The UK’s poor performance on wage growth is something of a puzzle when one considers the level of unemployment. As Conservative politicians are fond of pointing out, unemployment seems to have fallen to historically low levels.

Mainstream economists, convinced that every economic phenomena can be explained through the magic of supply and demand, have struggled to explain why wages remain so low in the context of such low levels of unemployment. With workers in short supply, companies should be bidding against one another to secure labour power, driving up wages.

The issue is that the headline rate of unemployment doesn’t tell us very much about real conditions in the labour market.

Economic inactivity—the proportion of people not actively looking for work—has risen substantially even as the headline rate of unemployment has remained relatively stable. Many people have simply given up looking for work altogether, which is in many ways more concerning than a short-term increase in unemployment.

The OECD report also pointed out that employment among the least educated in the UK fell more than in any other advanced economy during the pandemic. One of the reasons for this trend is that those with the least formal education are more likely than average to have worked on the frontlines during the pandemic.

A significant proportion of them will have contracted Covid at the very earliest stages of the pandemic and often had to go back to work immediately afterwards. Many have simply exited the labour force as a result of long-term physical and mental health conditions related to Covid.

What’s more, the rate of unemployment doesn’t tell you anything about the rate of underemployment. Those on zero-hour contracts and those who are falsely self-employed—often in the gig economy—may report being in full time employment but may not be able to work as much as they would like.

The reason wages are so low while employment is so high is very obvious: bargaining power. Even in a tight labour market, bosses will not simply offer workers higher wages; workers have to demand higher wages. And to demand higher wages, workers have to feel secure enough to drive a hard bargain.

Low-paid workers feel anything but secure. The rise of so-called ‘in-work poverty’ has been well-documented in the UK in the period since the financial crisis. Analysis from the housing charity Shelter found that 55% of families living in temporary accommodation were working despite being homeless.

What’s more, with rates of unionisation having been in decline almost continuously in the four decades since 1980, most workers feel utterly insecure and alone in their negotiations with their employers. They are more likely to try to demand a pay increase on the basis that they have personally worked especially hard, rather than by organising alongside their co-workers to demand a greater share of the profits generated by their labour power.

And as evidenced by the rates of economic inactivity and underemployment, the reserve army of labour—the pool of inactive workers capitalists can draw on whenever they need to—is actually quite extensive.

If wages were to pick up or conditions were to improve, there is every chance that economically inactive people would re-enter the labour market, and underemployed people would pick up more work. In other words, the supply of labour isn’t as limited as headline unemployment figures suggest.

Employers know this, so they aren’t offering workers wage increases in line with inflation, choosing instead to protect profits for shareholders and executives, who have far more bargaining power than the average worker. In fact, research last week from the High Pay Centre showed that CEO pay shot up by nearly 40% between 2020 and 2021.

This divergence between the experiences of high and low paid workers should provide very clear evidence that the problem with the UK labour market is a pervasive lack of bargaining power. Workers at the top end of the income spectrum are in a much stronger position to argue for wage increases than those at the bottom end—not least as a result of the former’s proximity to shareholders themselves.

In fact, this is exactly what the OECD found when they compared the UK labour market to other advanced economies. Workers in the UK feel relatively powerless to demand higher wages, while those in other advanced economies where unions are stronger have been better able to resist real terms pay cuts.

Thankfully, we are beginning to see a resurgence in labour movement organising. Workers in key sectors up and down the country are not only organising to protect their pay and conditions—they are coming together through campaigns like Enough is Enough to demand that government takes action as well.

The hope of this coordinated action is that it may encourage precarious, insecure, and underemployed workers to join—or form—unions themselves.