Up the workers
As RSA Chairman Luke Johnson announced in his FT column yesterday, the Society is to hold a Jobs Summit in January at which a range of experts will offer ideas to get today’s labour market moving and to prepare the way for the jobs of tomorrow.
Some new data from the United States offers interesting food for thought ahead of the summit. As Robin Harding explains in the FT, the key figure is 58%…
‘That figure is the share of US national income that goes to workers as wages rather than to investors as profits and interest. It has fallen to its lowest level since records began after the Second World War and is part of the reason why incomes at the top – which tend to be earned from capital – have risen so much. If wages were at their post war average share of 63%, workers would earn an extra $740bn this year, about $5000 per worker.’
This is not only an issue of fairness, it also impinges directly on the economic crisis. For while many corporates are sitting on cash mountains (which they are not investing because of low demand and uncertainty about the future), were that money in the hands of workers they would presumably be out spending it.
The causes of this trend are complex but it seems reasonable to conclude that a combination of globalisation, technological change, and neo-liberal policy has led to a fundamental shift of power from workers and their agents on the one hand to owners, investors and their agents on the other.
The factors which govern the balance of power and wealth between owners and workers are all pointing to a further shift away from the latter. Tight labour markets favour workers but apart from some pockets of the economy high unemployment means the power lies with buyers – not sellers – of labour. Outside the public sector trade unions are now very weak. The Coalition is committed to less not more labour market regulation. Rising wage levels in developing countries will eventually lessen the impact of globalisation on developed world employment and wages, but only in the long run.
Perhaps one answer– and here I am well outside my comfort zone – is to provide carrot and stick incentives for companies and investors to put their money to work, especially in ways that boost wages or create jobs. One way is the idea floated in the Autumn Statement of investing pension funds in infrastructure projects, but the problem here is that this is a slow solution to an immediate crisis. Another – which could work much more quickly – would be some kind of deferred ‘use it or lose’ tax on company liquid assets.
As always, I am hoping for some enlightening comments on this post but I will also be nervously scanning my inbox. The last time I ventured into economic policy I got a polite but firm late night email from Jonathan Portes, Director of the National Institute of Economic and Social Research. I can’t recall the precise words he used but it was something like; ‘Hi Matthew, I really enjoyed your recent post about a bond to create jobs. Sadly, it was economically illiterate’.
Comments
4 Comments on Up the workers
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Juan on
Thu, 15th Dec 2011 6:58 pm
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oneandonlydebs on
Thu, 15th Dec 2011 7:31 pm
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Indy Neogy on
Fri, 16th Dec 2011 1:40 pm
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Ian Christie on
Mon, 19th Dec 2011 5:27 pm
Fundamentally, employers don’t need the unemployed. They can make do with a diminished work force; this situation might improve once the economy itself improves, but as you’ve said this is a very slow solution and does nothing for those stuck in a bad situation. Your answers to the problem strike me as neo-liberal lite in so far that you still think that business and the market (the labour market in this case) are the solution. But with low demand in the economy there’s little reason to think that these incentives will make much of a difference.
We could however take a different tack and look for salvation elsewhere. One of the most exciting theories in economics right now is MMT, short for Modern Monetary Theory. It is a repudiation of mainstream economics that is nevertheless an intellectual descendant of Keynes, among others. You can read an interview with one of its major proponents here:
http://hir.harvard.edu/debt-deficits-and-modern-monetary-theory
And you can read his solution to the misery caused by unemployment here:
Nice idea and interesting research I would love to know if there are opportunities for a) young people b) creatives and arts makers/artists to be involved in the sharing of ideas not just being on the receiving end of things later down the line.
Tweet me and let me know
Debs
A “use it or lose it” tax on company cash mountains is a statist solution. It’s a blunt tool, but it has the advantage that the legislation would not be that complex to introduce.
However, there’s a lot of philosophical opposition to statist solutions, so I’d float an alternative. Rather than a use it or lose it tax, in what ways might we encourage (or even regulate) a “use it or lose it” mandate to return money to shareholders?
Companies don’t want to invest. Let’s return money to the owners of the companies and see if they have a use for it. One suspects that they might…
Or another suggestion, innovation biased, but perhaps in-between on the statist levels. Pick a reasonable size of company (FTSE-100?) and regulate that they need to put a certain percentage of retained earnings into a VC fund. There would need to be (regrettably) some auditing to make sure they did it, but the profits would go to the company putting the money in, so they couldn’t complain that much. This might quickly improve the VC scene in the UK, meaning less of our startups move to the USA in search of funding. The innovation might help the economy along too…
Interesting post and responses – thanks, and while I am here, a Happy Christmas to all.
The neoliberal response to the jobs/wages crisis is presumably on these lines: a) workers will eventually price themselves into what jobs are available; b) those who can’t are a dead weight in our economy, unfortunately, and no concern of employers; c) in the very long run developing country wages will converge with ours, upwards and downwards.
This is not much use for the economy and society we have. Real reductions in wages means lower demand; and pricing yourself into jobs in competition with developing country workers means pricing yourself out of many services and sectors of our economy and society, eg decent housing, personal pensions, etc etc. Sooner or later, declining purchasing power among those on low incomes and in the precarious middle class has to be addressed by governments or employers or both: if ignored, it means shrinking demand and further illusory financial strength for businesses building up cash and profits in the short term by cutting labour and weakening workforces. State and business ultimately need to choose: are they entirely in the grip of a globalised trade system or not? If not, sooner or later issues of national and community interest have to come back and trump obedience to neoliberalism.
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