From the TUC

The progress of exploitation

10 May 2013, by in Economics

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:

Productivity and compensation 1To make what has happened clearer, we can show the gap between the two as a single line:

Productivity and compensation 2There 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:

Productivity and compensation 3The 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’.

 

6 Responses to The progress of exploitation

  1. Peter Whipp
    May 11th 2013, 12:43 pm

    That is an excellent article. If productivity increases more quickly than wages, then workers produce more but do not have the means to buy it unless prices decline and if prices decline, firms are encouraged to reduce their payrolls. There cannot possibly be any growth unless wages increase.

  2. A tale of two welfare states | Think Left
    May 13th 2013, 2:40 am

    [...] Not only does the UK pay out unemployment benefits less generous than Romania, Albania and the US, but the wages of the employed have simply not kept pace with productivity over the last 30y. [...]

  3. A tale of two welfare states
    May 13th 2013, 1:05 pm

    [...] Not only does the UK pay out unemployment benefits less generous than Romania, Albania and the US, but the wages of the employed have simply not kept pace with productivity over the last 30y. [...]

  4. The hidden welfare state | Think Left
    May 14th 2013, 3:15 am

    [...] Not only does the UK pay out unemployment benefits less generous than Romania, Albania and the US, but the wages of the employed have simply not kept pace with productivity over the last 30y. [...]

  5. Ralph Musgrave
    May 15th 2013, 9:17 am

    While Richard Exell’s article concentrates on manufacturing, the article is clearly designed to give the impression that pay for ALL EMPLOYEES has fallen behind productivity. E.g. see his final paragraph. And Peter Whipp who comments above has obviously fallen for Richard Excell’s trick.

    The reality is that productivity for the average employee in the UK over the last four years or so has FALLEN. But have employees taken pay cuts to match? Far from it: average pay has increased by about 2%pa over the last four years or so. That largely explains why we have at least 2% inflation, and hence why government cannot raise demand and get more of the unemployed into work.

    So if there is exploitation going on, who’s exploiting who? Looks to me like TUC members and non-unionised employees are exploiting the unemployed in that the former are making it impossible for government to boost demand which would make it possible for more of the unemployed to find work.

    As for the idea put by the TUC (linked to in the 2nd last paragraph above) namely that raising minimum wages would do much to increase demand, that’s nonsense. There might well be a case for a higher minimum wage, but if those wages ARE RAISED, the cost increase will be passed on to customers (i.e. Mr & Mrs Average). Net effect on demand will be zero. In any case, anyone with a GCSE in economics knows how to increase aggregate demand, minimum wage increases or absent minimum wage increases. I.e. minimum wage increases are irrelevant to the “demand” issue.

    Cameron and Osborne are bad enough. If the TUC was in charge of the economy, we’d be even worse off.

  6. The hidden welfare state that the U.K. government dares not speak of | Black Triangle Campaign
    May 15th 2013, 12:19 pm

    [...] Not only does the UK pay out unemployment benefits less generous than Romania, Albania and the US, but the wages of the employed have simply not kept pace with productivity over the last 30yrs. [...]

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