From the TUC

Tackling inequality is good for the economy

17 Sep 2012, by in Economics, International, Labour market

The UN body responsible for looking at trade and development issues, UNCTAD, issued a report last week that adds to the calls for action to stem rising inequality, not just for moral reasons, or to prevent social dislocation, but for sheer economic efficiency. Its Trade and Development Report 2012 urges progressive taxation and a reversal of greater labour market flexibility to tackle the reducing share of national income going to wages (rather than profits) and also warns that growth is slowing in all regions of the world, which it says are “hamstrung in part by austerity measures that are hampering demand in the major developed-country markets, thus cutting the export prospects of developing countries.” UNCTAD also backs up what Unite’s Tony Burke argues today over at Stronger Unions, that collective bargaining has a key part to play in reducing inequality and improving economic efficiency.

UNCTAD says that

“the paradigm of labour-market flexibility has not only failed to reduce unemployment, but tends to exacerbate it. By relying on wage compression as the main tool for expanding employment, such labour market reforms dismiss the important contribution of income distribution to demand growth and employment creation.  If overall productivity grows without a commensurate increase in wages, demand will eventually fall short of the production potential, thereby reducing capacity utilization, profits and investment, the report says. In addition, by promoting wage differentiation at the firm level – in other words, determining wages at each individual business, rather than by collective bargaining or setting broader standards – these reforms would undermine the incentives for investment, innovation and productive gains by businesses, the report says.  Indeed, if less efficient firms can compensate for their lower profits by cutting wages, they are not forced to increase their productivity to survive.”

In addition, UNCTAD calls for measures to address the weak bargaining power of the poorest, and those excluded fromthe formal labour market such as the informally employed and the self-employed. Legislation for minimum wages is one solution suggested.

The UNCTAD report also reveals that:

“trends over the last 30 years show income inequality increasing both within countries and between them. The share of wages in total income has fallen in most developed and in many developing countries. For example, it fell by 5 percentage points or more in Australia, the United Kingdom of Great Britain and Northern Ireland, and the United States of America, and by 10 percentage points or more in France, Germany and Ireland.”

Earlier this year, neoliberal governments tried to prevent UNCTAD from commenting on broad economic policy (and you can see why!) To their credit, the UK didn’t join in. But the UK government does need to respond to what an increasing number of international institutions are telling them. First, austerity isn’t working (although bodies like the IMF and OECD are coded in their public criticisms). Secondly, we need a mixture of jobs growth, transfers of income from the rich to the rest (through taxation and collective bargaining), and investment in skills and infrastructure (which at a time of wobbly business confidence means greater state expenditure) to get the global economy back on track.