Wednesday, 17 December 2014

Time to talk about 'Wage Avoidance'

Andrew Fisher makes the case for a new concept: 'wage avoidance'

Thanks to the likes of Richard Murphy, UK Uncut and the PCS union we are aware of the scale of 'tax avoidance' - with the rich and big business using and abusing loopholes to avoid paying their way. But there's a new phenomenon we should be becoming aware of: 'wage avoidance'.

Although there has been an acute drop in earnings in recent years, down 10% in real terms since 2010, the phenomenon of falling wages is much longer run. In the latter half of the 1970s, total wages were worth about 65% of total national income; in recent years that figure has been only 55%. In contrast profits have risen - and continue to rise.

Like tax avoidance, wage avoidance has social and economic costs. In-work poverty is at record levels (up 59% under this government) causing misery for those in low paid work, and has meant us all sharing the costs through increased bills for housing benefit and tax credits.

Like tax avoidance, wage avoidance also damages the economy by reducing consumer demand. The OECD has this month shown that income inequality damages economic growth.

And like tax avoidance, wage avoidance is facilitated by the government - part of the same neoliberal ideology that believes attracting business and economic growth means enabling employers to get away with dodging their taxes and not adequately paying their workers.

Falling wages in the longer term

The deregulated UK labour market has, as Blair once said (and pledged to maintain), "the most restrictive union laws in the Western world". Nothing thirteen years of New Labour government did changed that.

But the fundamental changes were made under the previous governments of Major and of Thatcher. As her longest serving Chancellor Nigel Lawson said:
"a reduction in union power was an important aim of Conservative policy even though it was couched in the language of checking abuse, democratising procedures, and so on."

In the early 1980s, the Thatcher government ended the closed shop, banned secondary action and flying pickets, and required postal balloting before strike action.

Unionised and skilled industries were closed down or privatised - and the proportion of collective bargaining fell from 85% to around 40% after 18 years of Conservative government. Under Major 25 wage councils were abolished (all except the Agricultural Wages Board which was abolished by the current Prime Minister in 2013).

A similar agenda is being pursued by David Cameron whose government has attacked and threatened further attacks on union strike ballots.

Falling wages post-crash

The post-crash economy has been punctuated by insecure work, and low paid, low skill and low productivity jobs.

The explosion of zero hours contracts have made workers even more exploitable - with an estmated 1.4 million such contracts in existence, having quadrupled since 2012 according to estimates. Workers on temporary contracts are up from 6.2% to 6.5% of the workforce in the last year alone.

Likewise the rise in apprenticeships that the Prime Minister boasts about has meant predominantly young workers being exploited on £2.73 per hour (the legal minimum wage for apprentices) without learning the skilled trade that many of us associate with genuine apprenticeships.

To compound this, there are now the absurdity of traineeships - trainee apprentices in which young workers can train to be an apprentice, for no wage at all. Disgracefully, and in contravention of Congress policy, the TUC has supported this government policy alongside the CBI - a move condemned by member unions.

For the unemployed there is workfare - working full-time hours for free or face losing your benefits. The welfare state is now pimping out free labour to profitable companies - supported by all major Westminster parties.

For many young graduates unpaid internships demonstrate that the scourge of the free labour extends to the professions too - from legal firms, to journalism and MPs' offices.

But rising wages today?

The ONS today (17 Dec) published its monthly bulletin Labour Market Statistics for October, which showed that regular earnings have risen by 1.6%, while CPI inflation has fallen to 1.0% (RPI is still 2.0%).

As the Telegraph's Associate Editor posted today:

To put the CPI vs weekly earnings figure in perspective, it is the first month since 2009 that this has been the case. The ONS itself says the decline in CPI is substantially due to the falling cost of motor fuels - so if you feel a bit better off, you probably owe any thanks to OPEC rather than to your employer or this government.

So what is needed to boost wages?

Given we can't rely on the Saudis and the geopolitics of oil to save our living standards, what can be done to boost wages?

Here's some quick modest suggestions:
  1. Invoke the John Smith doctrine of 1993 for a "charter of employment rights will give all working people basic rights that will come into force from the first day of their employment. We will give the same legal rights to every worker, part-time or full-time, temporary or permanent". It would mean workers on flexible contracts (be they temporary or zero hour) would have rights they don't now possess
  2. Raise the minimum wage immediately to the level of the living wage. This could be subsidised in some way initially (as Labour proposes) but should be compulsory not voluntary, and applied at the same level for all workers alike. The minimum wage lost 7% of its value in real terms between 2008 and 2013.
  3. Restore trade union rights and promote collective bargaining - the surest way of creating and sustaining wage gains. Strong trade unions are inequality busters, as we've noted before
  4. Have an industrial strategy to invest in the creation of well paid skilled jobs and to expand the productive sectors of the economy do maintain skilled jobs
  5. Cap and deter high pay - using employer ratios to limit the differentials between top bosses and their workers; with higher punitive tax rates on the highest pay rates to deter corporate revenues being eaten up by the greediest rather than the most productive.
  6. Ensure the minimum wage is enforced for internships (as it should be), and legislate to make all work experience schemes through the welfare system voluntary and paid (at least at the level of the minimum wage) with no loss of benefits for participation
If we are to tackle wage avoidance it will take action and a restructuring of the power relationships in the labour market - between workers and employers; and companies and government.

N.B. This article was updated on 23/12/14 to add point '6' - as it was pointed out to us that there was no remedy to the points we made regarding workfare and internships.