Trade unions the true ‘fix for cost of living crisis’

A busy couple of months has seen my eye somewhat taken off the ball on this blog – this is my first post this month and only my second since the end of March.

Aside of all that, however, I couldn’t help but notice the publication of the Office for National Statistics’s monthly labour market overview last Tuesday and its subsequent weaponisation by the government (a) as an inevitable distraction from its reign of perpetual chaos and omnicrisis; (b) in connection with its refusal to do anything of note about the sharply rising cost of living; and (c) to talk up its own record on the labour market (as if any of this was the result of its own policies). In particular, I did manage to note Boris Johnson’s appearance in the Sundays to link (c) and (b) – to stress ‘work’ as the ‘fix for the cost of living crisis’.

From the ONS’s overview, it’s true that unemployment – at least on this measured definition – is low and declining, and has also dropped beneath pre-pandemic levels. The employment rate – the number of people in work, of some type – is also slightly higher. The number of vacancies in the economy rose sharply and, at 1.295m, is actually higher than the number of the registered unemployed (1.257m); while the number of job movers from one job to another during the first three months of the year – as a result largely of resignations than dismissals – is also high. All this might, at superficial level, be a sign of a labour market that is ‘tight’, or ‘heating up’ – but this is indeed, far from being ‘red hot’ with many of the jobs being poor quality and with a mismatch to skills.

We don’t have to delve too far into the data to find the most obvious sign of why the labour market is not ‘red hot’: wages. In a ‘tight’ labour market, theory would indicate that wages should be rising to compensate for the evident shortages of labour. But, while they are rising, according to the ONS’s data, it is largely because of the contribution being made by bonuses: rises to basic pay are rising much less quickly and, currently, are rising less fast than the cost of living – thus, real wages across the economy are actually declining, despite the headlines in some sectors. Bonuses are short-term, given (and withdrawn) at management discretion; they are confined substantially to the finance and business sectors, which account for 60 per cent of all bonuses; they do not provide proper compensation for workers’ labour; they are outside the purview of collective wage setting; and, quite frequently, they prove to be discriminatory against women, people of colour, disabled people and the young.

Additionally, we know that no less than 41 per cent of universal credit claimants are actually already in a job (formally, in what the DWP’s ‘conditionality regime’ calls ‘working – no requirements’) – i.e. that taxpayers’ money is being used to subsidise wages for workers that are uneconomically low; while 68 per cent of working age adults in poverty live in a household where at least one adult is in work. Government support to subsidise low wages is a major intervention which both undermines the labour market and the incentives for workers to collectivise.

Of course, all this shouldn’t be happening – Brexit, in ending the free movement of labour, was supposed to ensure that ‘reserve army of labour’ arguments no longer applied to this country’s wage setting mechanism. In truth, it might be a little too early even to be thinking of sending the jury out on that one, although the signs are evidently not good. Nevertheless, wage growth in the UK has been poor for more than a decade – since at least the 2007/08 financial crisis, in fact – and, while there is likely to be a lag between a ‘tight’ labour market and the point at which wages start to rise, even if this does kick in at some later point, it is clearly starting from a low, and unstably weak basis. While it has changed little in the last twenty years, the labour share of income is lower than in the 1970s and the last time it rose consistently was in the few years of the first Labour government after 1997. In short, we do not have any evidence that the UK’s wage setting arrangements are currently able to respond appropriately to the signals sent by the labour market.

Consequently, it is more than evident that work is not the route out of poverty – and not only the elderly, those who are economically inactive, for whatever reason, and the ‘in-work’ poor. Everybody in work is poorer off than they should be, with an evident impact on living standards both in the here and now and in the future, in terms of pension saving. The labour market that we have is good at creating jobs but much less so at raising wages. Not for the first time, nor no doubt for the last, it is clear that Johnson does not know what he is talking about.

Chief among the reasons why our wage setting arrangements are not fit for purpose is the 40-year neoliberal attack on our collective labour market institutions – both trade unions and collective bargaining. Trade union density in the UK – the percentage of employees who are members of a trade union – now only reaches 23.7% (fewer than one in four workers); while collective agreements only cover 25.6 per cent of employees (both heavily supported by the public sector): these are official government membership figures drawn from its specific annual statistical bulletin (the 2022 update, containing figures for 2021, is actually due out later this week). The decline in collective agreement coverage is part of a Europe-wide phenomenon (and, likely, for similar reasons of the political shift rightwards); and the signs on trade union membership in the UK are not all bad – there have been rises in each of the last four years; trade union members still number a substantial 6.56m; and there is indeed a lot more ‘buzz’ around the phrase ‘trade unions’ than in many years – decades, even – hitherto.

Economically, trade unions are a good thing: on pay, we know for example that unionised workplaces see wages that are higher, on average by 5 per cent for equivalent workers; and that wages in unionised workplaces are less dispersed, thus helping to reduce wage inequality (both stats from Alex Bryson and John Forth from 2017). Any reduction in inequality in the UK is entirely welcome, not least in view of the UK now, as a result of rising wage disparity, having the highest level of income inequality than anywhere in the EU other than Bulgaria – itself, as an aside, an interesting indicator of the failure of ‘trickle down’ theory. Furthermore, there is significant evidence about the cost of living gap: that it is the poorest who face inflation rates that are much higher than they are for the richest (as a result of a much higher share of income going on the sorts of things where prices are rising quickest: energy and food).

One solution – and possibly the most significant, as far as workers are concerned – to the cost of living crisis is, therefore, a strengthening of our labour market institutions to ensure that workers properly receive the value of their labour, thus allowing workers better to face the cost of living crisis. As we know, the much-promised Employment Bill has again gone AWOL but, should it ever appear, one of the most important things it could do is to take the shackles off trade unions and encourage collective bargaining at industry-sectoral level, ensuring that fair rates of pay are set and which apply across a sector, preventing employers from competing against each other on wages, thus driving wages downwards, and stopping workers being set against each other. Boosting collective bargaining will boost the labour share of income.

I am, of course, not holding my breath; a government which takes its cue from the sorts of newspapers whose headlines today, as Johnson is again pictured with wine at a gathering during lockdown, try to pin the blame on strikes for the problems in the energy and food supply chain is not going to throw the gears into reverse on 40 years of neoliberalism. The TUC argued for a restoration of the role of collective bargaining in its evidence to the Spring Statement, back in March, and there is no evidence that anyone in the government was listening then or, just as importantly, has learned anything since.

But it is precisely this that workers need if we are to be able to deal with the rising cost of living.

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