The complexity of securing a pay rise for Britain

The collection of essays recently published by the Resolution Foundation offers a range of innovative solutions

Sarah BrownIn the context of signs of economic recovery, the recent publication of a collection of short essays by the Resolution Foundation that explore a wide range of themes related to securing wage recovery in Britain is both timely and welcome.  Given the well-documented, recent sharp falls in the number of people in Britain claiming jobseekers allowance and the general resilience in the job market, attention has naturally turned to the question of pay, as well, of course, as the types of jobs being created, ‘real pay’ and living standards.  Indeed, at the start of the year, in campaigning mode, David Cameron borrowed the TUC’s campaign slogan and told businesses that ‘it’s time Britain had a pay rise’.

The Resolution Foundation’s collection of concise essays ‘offers solutions as well as stating problems’ in relation to the issue of putting Britain on the path back to shared wage growth.  The contributors are drawn from a range of backgrounds, including academia, journalism and the policy world, which generates insights and potential solutions from both microeconomic and macroeconomic perspectives.

One enduring theme that runs through the collection relates to the importance of productivity growth.  The essay by John Van Reenen succinctly summarises the issues relating to stagnant productivity growth and emphasises the urgent need to boost public and private sector investment,  whilst at the same time noting the unavailability of a ‘quick fix’ on this front.  Andrew Smithers also focuses on the implications of the decline in investment in Britain and argues for far-reaching reform of management incentives designed to encourage managers to focus on productive investment, rather than simply pursue short-term gains that keep shareholders happy.

A discussion of productivity growth would clearly be incomplete without some comment on the role that can be played by further development of education and skills training in the face of skill shortages.  It emerges that the transition from formal education to employment is particularly problematic in Britain, which suggests that improvement of the skills of young people is crucial. There seems to be consensus across the political spectrum that apprenticeships and vocational education play a key role here.

Alison Wolf argues, however, that the emphasis should be on boosting the quality of apprenticeships, rather than boasting about the number created.  In this respect the overhaul to the organisation, structure and funding of apprenticeships in England following the Richard Review is a move in the right direction.  But, as with any investment, Wolf emphasises the importance of recognising and accepting that apprenticeships that last several years are the ones that ultimately yield the greatest pay-offs.  Once again – and indeed it’s a constant theme of the Resolution collection – there are no quick fixes in this regard.

Stephen Machin discusses the changing relationship between unemployment and real wages and notes that people are increasingly ‘pricing themselves into work’.  In the post-crisis period since 2008, it appears that uncertainty has led to increased job insecurity, with many individuals being more concerned about getting and retaining jobs than with the wages they are paid.  In addition, high levels of underemployment, whereby individuals want to work more hours than they are contracted to work, means that there is likely to be more slack in the labour market than is signalled simply by the unemployment rate.

Such labour market phenomena, along with the increasing use of zero hours contacts, are a stark reminder of the shift in the balance of power from workers to employers that has taken place over the last 20-30 years.  John Philpott’s assessment of the concept of a dual labour market highlights several issues related to this shift of power.  Alan Manning also proposes several strands of a strategy to re-tilt the balance back towards labour and thus help to ensure that future productivity gains are enjoyed by all workers, an important part of ensuring shared wage growth.

From a macroeconomic perspective, Simon Wren-Lewis argues that too little attention has been paid to wage growth within the current macroeconomic consensus, with macroeconomic policy tending to focus on maximising gross domestic product rather than boosting real wages.  In this essay, Wren-Lewis outlines the potential role that macroeconomic policy could play via ‘helicopter money’, which he defines as ‘creating money to give to people to spend’.  His essay usefully reminds us that securing a pay rise for Britain potentially falls within the remit of macroeconomic policy, as well as, more typically, the realms of labour market and education policy.

There isn’t space here to comment on all sixteen essays in the book, but all of them make pertinent points, ranging from the plight of younger people in the labour market, to potential lessons to be learned from the United States, to the role of minimum wages and in-and-out-of-work benefits.  Overall, a wide range of innovative solutions are outlined that highlight many possible ways forward, encompassing aspects of both microeconomic and macroeconomic policy including policies related to pensions and housing.

A key and consistent theme draws attention to the need for active policy in moving forward. Furthermore, an important point is made by Jared Bernstein who argues persuasively that it is crucial to make the link between microeconomics and macroeconomics in the wage debate.  This link is frequently overlooked.

Above all, though, this useful collection of concise essays highlights the many complexities involved in securing not only a ‘pay rise for Britain’, as measured in some cumulative, quantitative sense, but in ensuring wage growth that is genuinely shared.  We are rightly reminded that achieving the latter is a considerable, although much needed, task that will take a long time to achieve, even with the necessary political will.  This book at least amounts to a first step in the right direction in that it will generate a more informed debate about the policy challenges which lie ahead on this front.