From the TUC

It’s not just Britain that needs that pay rise

24 Feb 2015, by Guest in International

During Fair Pay Fortnight, the TUC has been sending out a clear message about Britain’s shrinking pay packet, but how do things compare with the rest of Europe?

Well according to the latest analysis by the Labour Research Department (LRD), the UK is close to the bottom of the pile. LRD’s Workplace Report magazine produces an annual survey of pay and price trends across the European Union. Last month’s issue shows that the UK was one of only four countries where real pay fell last year.

The other countries in this select club are Cyprus, Ireland and Portugal. And what do they have in common? All have been subject of the attention of the Troika – the European Commission, the European Central Bank (ECB) and the International Monetary Fund. Perhaps surprising that Greece was not among them as it has been taking the Troika’s economic medicine longer than the others. In fact, LRD’s figures show  a 2.1% increase in earnings combined with a 1.3% fall in prices, putting real earnings rising at 3.4% and Greece among the top 10 in the EU.

This apparent good news for Greece is the kind of data the Troika jumps on. Is it light at the end of the tunnel? Just wait long enough and austerity delivers? Recent research for EPSU puts this into perspective.  Wages in Greece in both the public and private sectors are lower now than 10 years ago as the chart below shows. And this is before taking inflation into account.

Wage trends in Greece

graph2

The research was presented last month at EPSU’s collective bargaining conference where there was a particular focus on long-term trends in the public and private sectors. The repeated message coming from the Troika and its component parts is not just about the need for wage moderation in general but about clamping down on public sector pay in particular.

This was enshrined in the Euro-Plus Pact of 2011 which called on governments to “ensure that wages settlements in the public sector support the competitiveness efforts in the private sector (bearing in mind the important signalling effect of public sector wage).”

There are so many things wrong with this, it is difficult to know where to start. But firstly lets just look at this question of a “signalling effect”. Do the European institutions understand wage dynamics across Europe?  

Research for EPSU challenges the idea of a clear signal coming from the public sector, citing European Commission research that doubts this relationship. Indeed, as the study points out, much of the claims about the  relationship between public and private sector pay are based on statistical correlations, rather than an analysis of what actually happens in the bargaining process

And what about the competitiveness question? For the Commission and the ECB the talk seems to be exclusively about wages, competitiveness and labour market flexibility.

However, this overstates the role of labour costs in competitiveness and leaves out the more important questions such as innovation and the complexity of exports. This issue is explored in detail by European labour movement economist Ronald Janssen in a series of briefings that pull apart the central arguments coming from the advocates of austerity.

The fourth briefing in particular addresses three essential points and shows that:

  • Wage cuts don’t work and the evidence shows that countries with higher wage growth have a better employment performance;
  • Higher minimum wages levels don’t need to lower employment for lower skilled workers; and
  • Wage increases have not been excessive with pay in most EU countries failing to keep pace with productivity (see below).

Real wages and productivity – changes since 2008 (source AMECO)

graph1

And then there is the deflation question. The ECB sets a price stability target of 2% but inflation across Europe has been well below this for some time and now even expectations about future inflation are also on a downward trend. Europe’s recovery is still very weak, demand is anaemic and there is an urgent need for a substantial boost to economic activity.

Higher wages are crucial in this context and the International Labour Organisation has made this argument at global level. Sandra Polaski, the ILO’s Deputy Director-General for Policy, said:

“Wage growth has slowed to almost zero for the developed economies as a group in the last two years, with actual declines in wages in some. This has weighed on overall economic performance, leading to sluggish household demand in most of these economies and the increasing risk of deflation in the Eurozone.”

Highlighting also the question of equality, the ETUC is putting forward similar arguments to the European Commission with a call for “fair wages as an engine for growth”.

The European Commission and the ECB have come up with their plans to tackle the faltering recovery. The Commission has its investment plan and the ECB recently announced its measures for quantitative easing. But as the ETUC argues neither will work if the European economy is still constrained by puny increases in real pay.

Going back to the LRD survey, apart from the UK’s wage deflation the biggest economies in Europe have very weak real wage growth: 1.8% in Germany, 1.1% in Italy, 1.0% in France and 0.8% in Spain. And in the latter three, ending five-year freezes in public sector pay would be a crucial step in helping to kick start those economies.

It’s not just Britain that needs that pay rise.

One Response to It’s not just Britain that needs that pay rise

  1. bs
    Feb 27th 2015, 11:33 am

    are you serious? Greece? A country with some of the most inefficient public sector institutions in the world and yet paid 3x the similar private sector employee doesn’t need public sector wage cuts? Have you been living under a rock or are you seriously that deluded?