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The impact of Brexit on British wages

Updated Tuesday, 23rd August 2016

Peter Bloom looks back and ahead at the effect of Brexit on British wages.

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History

5 newspapers lay on a table, with the headlines 'Britain breaks with Europe', 'over and out', 'So what the hell happens now?' and 'Brexit time'. Images of David Cameron looking shocked on the front pages. Creative commons image Icon threefishsleeping - Flickr under Creative Commons BY-NC-ND 4.0 license As  the first country to industrialise, the UK arguably has one of the longest histories of modern employment relations. It is one defined by high levels of unionism as well as a traditionally “voluntarist” role of the state. Over the past three decades (beginning in 1979) union membership and density has declined dramatically with the government supporting largely “pro-business” policies in the name of increasing “competitiveness”.

To provide a brief historical overview of this relationship – England was the first country in the world to industrialise beginning in the early 19th century. Although first considered illegal, unions were officially legalised in 1857. Over the next century, they would be influential in representing worker’s rights both in terms of collective bargaining with employers, helping to build a strong “Labour” political party and winning a number of generalised employee rights. After the Second World War this power  increased as Union’s increased their membership and the country put in place a strong welfare state. However, in the wake of growing labour disputes and fears of a slowing economy – this dynamic changed dramatically. The election of Margaret Thatcher in 1979 started a trend that continues to the present of supporting privatisation, less establishment worker’s rights and a decrease in Union with the aim of enhancing competitiveness. New Labour also adopted this “pro-business” perspective under the leadership of Tony Blair, despite the institution of some new policies like the creation of a national minimum wage.

Role of EU

The EU has had an overall positive role or at least not negative direct role for British wages. Legally, it has put forth a number of important employee regulations designed to protect their job security and wages. Economically, it has fostered higher consumer demand through attracting labour from across the continent. However, its largely economically liberal and recently pro-austerity policies have contributed indirectly to policies that threaten wages. Further, while they have put in place norms and regulations in support of employees, at the national level they can suffer from lack of enforcement as well as doing little to stop the overall “pro-business” agenda popularised over the past four decades that has helped to stagnate real wages for the average worker.

Effect of Brexit

There were a number of arguments, as can be imagined, for and against Brexit in regards to wages. The primary assertion of the leave campaign was that reduced immigration and bureaucratic regulations imposed by the EU (e.g. “red tape”) would increase pay for workers. However, economic evidence disputes these findings as higher immigration creates increased consumer demands and therefore more employment with higher salaries. Similarly, regulation has been instrumental in protecting worker’s rights including over pay and benefits. It is important to note that wages have gone down due to issues of globalisation (notably from the outsourcing of manufacturing and the comparative “race to the bottom” between countries to remain competitive in an increasingly deregulated world market). Yet this trend has been only negligibly impacted by the free move of labour within Europe.

The Political Implications

There are a number of questions going forward now that the referendum has been decided in favour of leaving the EU.

  1. What deal will the next government strike with the EU? If Labour wins could it actually fight to strengthen employee regulations at home and abroad?
  2. Can the UK use its independence to move away from present austerity policies that depress wages?
  3. Will the potential reduction in foreign workers, residents and capital depress or increase wages?
  4. What sort of regulations and enforcement policies regarding employment and wages will a new “independent” Britain adopt?
  5. If Scotland, as well as potentially Wales and Northern Ireland, leave the United Kingdom to stay in the EU, how will this influence English business and unions and thus wages?

 

 

 

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