What's next for British wages?

As the OU/BBC programme Can Britain Have a Payrise? highlights, the issue of low wages is not going away anytime soon. Indeed, it is a serious problem that British policymakers will have to take on regardless of party or ideology. However, the best way forward remains a matter of serious political debate. There remains much ambiguity as to how this issue should be properly resolved. Everyone seems to want Britain to have a pay rise but the path for getting there is still quite contentious and ambiguous.

Already, the British government under the Tories are taking measures to address this problem. The new ‘National Living Wage’ came into effect on April 1st 2016. Concretely, it raises the minimum amount paid to workers over 25 to £7.20 per hour with the intention of having this be raised to £9 by 2020. This could have a beneficial effect on upwards of 1.3 million workers over 25. Yet the Office for Budget Responsibility also notes that it could cost up to 60,000 jobs. The BBC summarises this policy in their article The new national living wage and you.

These initial efforts to raise wages are part of a potential broader rethinking of the positive economic effects of paying workers more. In the wake of the 2008 financial crisis, recovery has been sluggish. Policies of austerity seem to have further depressed wages and general economic sluggishness in terms of productivity and consumption. There is an emerging argument that higher wages will help to resolve these larger problems. In particularly, it will motivate employees to work harder and smarter while giving them more money to buy goods. David Spencer explores these ideas in his article The simple win-win case for higher wages in Britain in The Conversation.

There are, furthermore, attempts to provide a deeper analysis of why wages remain so persistently low. Conventional accounts of declining worker rights or crumbling welfare state do not fully address contemporary economic realities. This is particularly true in trying to understand why the effects of the “recovery” post-crisis. The current economy is one of increased zero-hour contracts and underemployment rather than simply unemployment. Thus a crucial but sometimes overlooked cause of wage stagnation is the reliance of employees on part-time as opposed to full-time jobs. The correspondent “C.W.” investigates this factor in the article The reason for low wages in Britain that nobody mentions in The Economist.

Of course, wage stagnation does not affect everyone equally. Indeed, low wages are also impacted by existing problems of racism and sexism. Declining pay, perhaps not surprisingly, is especially dramatic for non-white and non-males. There are serious racial and gender pay gaps that persist and in some cases are widening. They are linked to structural issues – such as women having reduced career opportunities if they take time off to give birth and start a family. The BBC reports on such persistent inequalities in its article Mother’s pay lags far behind men.

Politically, there are growing calls for more government action to deal with low pay. Such demands are perhaps best exemplified in the proposed policies of the new progressive Labour Party leader Jeremy Corbyn. He has demanded increased pay, strengthened worker’s rights, greater public investment for job creation and an enhanced welfare state. He has, furthermore, proposed a minimum wage across Europe to reduce immigration into Britain while advancing the welfare of citizens throughout the region. Significantly, he and his supporters are also directly putting into question the traditional relation of profit to pay. In contrast to giving employers free reign to determine how they allocate their profit, Corbyn has argued that they must share their dividends with workers in the form of higher pay and benefits. Jim Pickard examines this policy in his article Corbyn proposes link between dividends and fair pay in The Financial Times.