Have workers been getting their fair share of increases in productivity? On average, UK manufacturing increases at a rate of 3 to 3.5 per cent a year (a bit more recently). Has that been feeding through to wage increases?
There’s some interesting international figures just released by the US Bureau of Labor Statistics for the gap between productivity and compensation (wages). Unfortunately, the figures only cover manufacturing, but they’re still very informative. The figures cover the USA and 12 other advanced countries, including the UK, and they show labour productivity and compensation figures back to 1970, so we can look at how the two have grown over a period of more than forty years.
The gap between the two is a politically significant issue in the United States – not surprising, given the fact that, by 2011 (the most recent figures) the US productivity-compensation gap is easily the largest among the countries the BLS compares. But the figures also show that Norway is the only country where wages have grown faster than productivity.
Charting what has happened in the UK is fascinating:
There was a certain amount bumping around, but wage increases roughly kept in touch with productivity rises until the late 1980s. Since then, a gap has emerged and then grown. To my eye, the fact that the gap started to grow in the years after the major union defeats is significant, but you don’t have to follow me on this.
How does the UK compare internationally? In most of the other countries the gap opened up earlier than here, but there are some (such as Sweden and France) where this didn’t happen till the 1990s. Germany’s gap didn’t exist till the early 2000s, when the country adopted its strategy of competitive pay moderation.
How big is the gap, compared to the other countries? For those used to seeing this country at the bottom of leagues like this, there’s some encouragement to be gained from our mid-table position:
The TUC has been arguing for wage-led growth for a while now and from that perspective the wage-productivity gap is very worrying. If productivity improvements don’t feed rising living standards via wages, other mechanisms are slower and less reliable – essentially they rely on the trickle-down effect, which isn’t highly regarded right now.
There is a danger of a vicious circle: productivity doesn’t feeding through to wages, this holds back household incomes, which stunts demand, which leads to lower investment, which could lead to slower improvements in productivity. The next stage would be intensified struggles over how to share these smaller gains, with all concerned becoming less willing to put any aside for the ‘social wage’.