Homepage Education Events Research Resources Executive Pay
Show News
  1. Home
  2. News
  3. Britain requires a new social contract with workers to boost competitiveness

Britain requires a new social contract with workers to boost competitiveness

FAIR PAY

Britain requires a new social contract with workers to boost competitiveness

The UK economy needs to reduce its dependency on low pay and rising wage inequality if it is to achieve sustained economic recovery. What’s required is a new “social contract” with employees, says Howard Reed, writing in the LSE British Politics and Policy Blog.

Figures gathered by Reed, who is Director of the economic research consultancy Landman Economics, show the “wage share” – wages expressed as a share of total UK national income – has fallen since the early 1980s.

%ADVERT%

  • During the 1960s and 1970s the share of wages in national income fluctuated between around 58% and 61% – apart from a brief upward spike in the mid-1970s.
  • But it declined sharply in the early 1980s and has been below 56% since 1982, falling as low as 51% in the late 1990s.
  • Meanwhile, the profit share – operating surpluses as a percentage of national income – rose from 24% in 1980 to 28% in 2011.

Reed reckons that the danger for the UK economy is that, with labour becoming ever cheaper in real terms, the “low road” route becomes more and more attractive to employers as an alternative to capital investment.

He writes:

“In effect, falling real wages are a driver for reduced innovation and productivity. In this scenario the UK economy is likely to become increasingly stagnant and any growth that does take place is unlikely to show up in workers’ living standards. This makes the case for an alternative approach to UK industrial policy – one which doesn’t rely on falling real wages as the primary route to boost competitiveness – even more pressing.”

Main elements of a new social contract

According to Reed, a new social contract is required. This means:

  • raising the wage floor for those currently in work
  • capping and/or restraining pay at the top
  • extending the role of collective bargaining
  • reinstalling the goal of full employment.

A final word

“Our research suggests that rebalancing the economy toward a higher overall wage share, a lower dispersion of earnings and a reduced dependence on low pay, stronger growth and less economic turbulence is a necessary condition for achieving sustained economic recovery. Achieving this rebalancing requires, above all, a new social contract with labour, underpinned by a new set of governing rules between the state, the workforce and business. In the UK, the current contract has broken down. Growth no longer automatically delivers improved living standards for low and middle earners, while a large and growing proportion of the workforce is being denied secure work and decent pay.” - Howard Reed, LSE British Politics and Policy Blog, 20 August 2013.

Want to know more?

Title: "How can the UK boost the wage share? The rebalancing requires, above all, a new social contract with labour", by Howard Reed, LSE British Politics and Policy Blog, 20 August 2013.

Availability: Check out the blog at http://blogs.lse.ac.uk/politicsandpolicy/archives/35827.