THE BLOG
24/05/2018 16:36 BST | Updated 24/05/2018 16:36 BST

Why We Badly Need ‘Trickle-Up Economics’ To Boost Workers' Pay

Photography taken by Mario Gutiérrez. via Getty Images

The latest Office for National Statistics UK wage data shows that real basic pay (adjusted for inflation) grew around 0.4%, after a long period of shrinking. Yet, many workers (especially the lower-paid) have not experienced pay hikes, and are still suffering from the pay squeeze, austerity, and falling living standards, after the 2008 financial crisis. Indeed, many workers’ incomes have been stagnating and haven’t recovered from that crisis. Rising underemployment has had a big impact on constraining wages.

The wage squeeze has also been exacerbated by stark increases in income inequality in recent decades, notably the massively unequal share of income going to the richest 1% compared to those on average earnings and less.

These are consequences of the neo-liberal ideology of ‘trickle-down economics’ that has dominated politics since the time of Thatcher and Reagan in the 1970s/80s, and crowded-out competing economic visions. Trickle-down economics is a theory that peddles the increasingly discredited claim that benefits for the wealthy trickle down to everyone else. These benefits are often tax cuts on businesses, high-income earners, capital gains, and share dividends, as well as privatisation and deregulation.

For many, the impacts, as we are seeing in the UK, have often been dire; including falling wages, underemployment, and rising job insecurity (jobs are being created, but many are poor quality and low-paid), inequality, largescale tax evasion, austerity/erosion of public services, and lasting social damage most acute in apparently forgotten deindustrialised regions. Indeed, the social problems unleashed by ‘trickle down economics’ appear to have partly influenced public dissatisfaction reflected in the referendum vote to leave the EU (Brexit). Blame is variously redirected at remote EU elites, and migrants allegedly stealing jobs and driving down wages, an effective smokescreen obscuring its largely domestic origin (neoliberal ‘trickle-down’ economics).

This is why the UK badly needs a radical change in work and employment policy direction: ‘trickle-up’ politics rather than ‘trickle-down’. Similar debates are occurring in the United States. How might this new ‘trickle-up’ political economy be advanced?

There are largely unsubstantiated exaggerated claims that new technology and automation are displacing jobs and, therefore, wages. But, as Jared Bernstein, a former chief economist to Vice President Joe Biden, suggests in The Washington Post, the challenges facing the future of work are mainly the same as they have always been. Too many workers have too little bargaining power, and are exploited in jobs that lack robust labour protections. “This is neither a technology problem nor an evolution-of-work problem. It’s a political problem — one that could be solved by supportive policy”.

Clearly, the balance of power in the UK’s ‘modern flexible labour market’ is now skewed much too far in favour of the interests of the mega-wealthy and big business. Put simply, most workers who have to sell their labour to earn a living don’t have much power to bargain with employers to boost their incomes. One obvious way to (partially) correct this imbalance would be to make it easier for trade unions (collective organisations of workers) to represent workers and engage in collective bargaining with employers. UK unions have experienced significant decline, but this could be reversed.

Furthermore, regulations, employment rights, and protection for the self-employed, ‘gig economy’ and ‘zero hour’ contract workers, and others in precarious work, need to be both more robust and rigorously enforced. For example, there is a statutory minimum wage, but it needs to be much better enforced. Even better, workers should be entitled to a ‘Real Living Wage’, as recommended by the Living Wage Foundation.

Also, the taxation system is unfair and rigged in favour of the richest and big corporations. For instance, why should smaller responsible businesses, many performing vital community roles and employing local citizens, have to pay more tax than offshore multinational corporations and the wealthiest?

Job quality (rather than simply job quantity) also needs to be placed centre-stage as a new employment policy, preferably with a jobs guarantee (of a decent job) as a basic human right. This requires the state to craft a genuine long-term industrial strategy focusing on enhancing demand for good quality employment opportunities, which are more likely to pay well. Supplying education and training so that people can show they are employable, and then hoping that market forces will automatically act as a recruiting sergeant, is not enough.

A standalone Ministry of Labour could be reintroduced to ensure there is a government department unequivocally on the side of workers and their concerns.

Finally, alternative thinking about the economics of labour, work and employment is vital in schools, universities, and wider society; so it is more relevant to the real world of work. This need is evidenced by a campaign by University of Manchester economics students for greater pluralism in economics in protest at the dominance of mainstream doctrines in the curriculum.