The Institute for Fiscal Studies published a damning indictment of neoliberalism in the UK this week. It began by saying:
Wage and earnings inequality has been on the rise in the UK since the late 1970s / early 1980s, and with faster increases than comparator countries it is now one of the countries with the highest levels of wage and earnings inequality in the developed world. Labour market inequality arises in various forms: inequalities in employment opportunities, wages and hours worked, but also in other dimensions of employment, such as job security.
It continued with this executive summary, which I share in full because it appears appropriate to do so:
- Earnings inequality is considerably higher in the UK than it was 40 years ago, moving the UK up to being one of the higher earnings inequality countries in the developed world by 2019.
- The evolution of earnings inequality over the four decades between 1980 and 2019 shows distinct temporal and distributional differences. In the 1980s, earnings inequality went up sharply at all points in the distribution. In the 1990s and 2000s, upper-tail inequality rose significantly but lower-tail inequality grew less, especially in the 2000s. After the global financial crisis, the 2010s saw a modest narrowing of upper-tail earnings inequality and a more pronounced reduction of lower-tail earnings inequality.
- The long-run structural trend of rising earnings inequality was driven by technical changes that benefited skilled workers doing more complex tasks, whilst the minimum wage that was introduced in April 1999 played a crucial role in stopping and reversing the upward trend of lower-tail earnings
- The past 10 or 15 years have seen real earnings growth of most workers slow down and stagnate, giving the labour market a double whammy of more inequality coupled with little or no earnings improvement in real terms (with the exception of the low-paid who benefited from above-inflation upratings of the minimum wage).
- The nature of work has changed dramatically over the past 40 years. Traditional work patterns have become less delineated in the face of big compositional shifts in who works and the definition and structure of modern jobs. Worker power has fallen in the light of rapid union decline and increased employer power in pay determination.
- Two related significant shifts have been the rise in solo self-employment and the emergence of new informality via the gig economy. These have radically changed the jobs landscape and the way people work. In addition, the share of the lowest-earning quintile who are self-employed has increased by 54%, or 8 percentage points, from 15% to 23%, between 1999 and 2019.
- Higher earnings inequality, with low real earnings growth, and a very different labour market from 40 years ago have placed the world of work in a much more unequal and divisive place. To halt or reverse this trend requires significant attention be devoted to ways to restore and reinvigorate real earnings growth and to generate decent jobs with good career opportunities in an inclusive way.
So, in summary, I suggest that:
- Neoliberalism has made most people more insecure;
- Only the best off have done well in the last forty years;
- In the last ten to fifteen years real wages have stagnated;
- The UK is more divided and unequal now than it was when Thatcher came to power;
- There is a real cost to this, both economic and as importantly, in our wellbeing.
More than forty years of economic policy has failed then. But in response the report has two key observations. The first is:
In practice, government has few direct policy levers it can use to deliver wage growth to workers.
To which the authors add:
The changing composition of work that was documented earlier also offers significant challenges, if the aim is to ensure decent and fair work in future.
In effect, the author despair of doing anything about this.
So much promise, in other words, at the outset of this report and so typically IFS at the end - with a shrugged acceptance that what the market wants the market gets, as if that is our fate.
I'll take the first half, but do not accept the conclusions.
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Yes Prime Minister – The Four Stage Strategy
https://www.youtube.com/watch?v=nSXIetP5iak
Agreed
What else can you say about a vacuous theory of political economy that has always relied on rich people to fund its activities and its creditability?
Because that is all it has ever been – from the MPS to James Buchanan’s ‘work’ in Virginia. Inserted into public and academic discourse by greedy self serving corporate interests.
“IFS Shrugged”
Bullet point 3 suggests that the minimum wage was suppressed earnings for those at the lower end of the pay scale…. is that correct? Seems a bold assertion to make.
There is some evidence that it has set a ‘floor’ which is all people think they need to pay
Yes, I can see that a minimum wage will compress differentials at the bottom.
And, it is a fact that wages at the bottom have stagnated/declined in real terms. However to lay that at the door of Minimum Wage is a bit of a stretch. Do we really think that if the minimum wage were abolished tomorrow that pay rates for ANYONE would rise? No, low pay is NOT a result on the Minimum wage. I suspect that the IFS’s position is ideological and they are playing the game “if you assert something often enough it become accepted as true”.
You may well be right
May I suggest that a flow of workers from outside the UK (which I did not see in the IFS bullet points above), combined with a minimum wage (which may effectively have ‘capped’, rather than ‘floored’ wage rates), may have had a combined effect? I am thinking of all the white vans, the ‘gangmasters’; of the impact of the ‘black’ economy; the people-trafficking that continued unhindered for so long.
The memory of 23 dead Chinese cockle-pickers in 2004 (?) has always troubled me, because we did nothing substantive about it. To me, it spoke to something rotten in the system, that nobody really made a serious effort to root out.
I have no faith whatsoever in the IFS; it is, for me an expression of our problem, not our solution; political economy reduced to an abstract reductio ad absurdum.
Sorry, but that summary on the website has mangled what the part of the report says by leaving out one crucial word at the end of the relevant bullet point on the second page of the PDF:
“The long-run structural trend of rising earnings inequality was driven by technical changes that benefited skilled workers doing more complex tasks, whilst the minimum wage that was
introduced in April 1999 played a crucial role in stopping and reversing the upward trend of lower-tail earnings _inequality_” [emphasis added]
On page 6, they show continued wage increases at the 10th centile in 2010-2019 – greater even than the 90th centile – despite stagnation in the rest of the distribution.
They appear to test “upper-tail” and “lower-tail” inequality by reference to the 90:50 and 50:10 ratios. The 90th centile shot away in the 80s and 90s, but was broadly the same as others in the 2000s and 2010s. The 10th centile fell away in the 80s and 90s, but did better than the 25th centile in the 2010s and did the best (so caught up to some extent) in the 2010s. See figure 2 on page 6.
The impact of the minimum wage is dealt with more fully in section 9, from page 34 onwards, where inter alia they talk about positive spillover effects for those just above the minimum wage (pay rates increased to maintain differentials) or those aged below 25 (whose wages were increased in parallel, even when the minimum wage did not apply). And they also say: “For 20 years now, low-wage workers have benefited from minimum wage increases. They have experienced consistently higher wage growth than groups higher up the wage distribution … ”
They provide evidence for the minimum wage reducing wage inequality at the lower end, and then that “A large body of empirical evidence agrees in showing that these developments did not come at the expense of employment.”
I’ve only skimmed the report, but the shift from employment to “solo self employment” (presumably mostly low-paid gig economy style workers – Uber, Deliveroo, etc – as that is the end of the wage distribution where more people are, rather than plumbers, electricians, barristers, management consultants, etc.) is stark. But figure 18 (page 27) is interesting: while less secure, and with little progression, those in solo self employment like its flexibility and reported job satisfaction is higher than the other categories. Perhaps better to be a low paid “solo” than a zero hours employee? But best of all to have proper jobs that pay fairly.
Thanks
A simple question; how much have they incorporated the impact of the ‘black’ economy on “lower tail” inequality? I would hazard the specualtion, for the sake of debate advancement, that the Black Economy has a far greater effect on overall lower-tail wage rates, and therefore inequality. It comes down to what the measurer is measuring; so I wish to challenge the supposed rigour of the IFS measuring metodology, without more evidence of how it was done; e.g., what labour population was being measured (e.g., Chinese cockle-pickers, not specifically, but as an example only of what is difficult to reord; were the IFS chasing white vans for 40 years)?.
As I say, I’ve only skimmed the report. Here is the PDF: https://ifs.org.uk/inequality/wp-content/uploads/2022/03/Labour-market-inequality-IFS-Deaton-Review-of-Inequalities-2.pdf
It appears to draw its basic numbers from other work, such as the ONS’s Annual Survey of Hours & Earnings and their Labour Force Survey, and work published by the OECD and others. So you’d have to drill down to see how they deal with “black” economy. I suspect they are only measuring what can be measured, from the data available.
For example, “ASHE is based on a 1% sample of employee jobs taken from HM Revenue and Customs’ (HMRC’s) Pay As You Earn (PAYE) records” https://www.ons.gov.uk/surveys/informationforbusinesses/businesssurveys/annualsurveyofhoursandearningsashe So that is likely to miss the illegal sector entirely.
The Labour Force Survey conducts samples about 37,000 households every quarter, with questionnaires and interviews, so might reach further. https://www.ons.gov.uk/surveys/informationforhouseholdsandindividuals/householdandindividualsurveys/labourforcesurvey
The appendices of the report have some interesting points: for example, page 61, the UK minimum wage is near the top for European OECD countries, 55% of median earnings for a full time employee, and, page 62, has grown significantly faster than other most other OECD countries (similar to New Zealand). The table on page 54 shows the median hourly wage for the 10 fastest and 10 slowest growing occupations from 1999 to 2019. Lots of growth in health and other professional services, not so much in manufacturing trades or secretarial services.
I can see no evidence of any serious attempt to address the shadow economy
As you say, this is measuring what can be seen
Thank you for the information Andrew. I do not have the time to examine the papers in the detail deserved, but I have attempted an outline first cur assessment.
1. The Reports rely heavily on ASHE or similar: i.e., surveys. Surveys depend on the statistical population sample a) which is sent the survey, or receives it; b) completes it. Scarcely a comprehensive methodological net that will capture the total population, especially at the bottom of the income spectrum; ‘a fortiori’ if there is no rigorous analysis of the statistical sampling. I did not see any discussion of the accuracy of the surveys as reliable statistical samples of the required income/labour populations being used (someone may wish to correct me, if I have missed the key facts).
2. The first Report (IFS Deaton Review) then uses surveys very extensively throughout, for most of the quantitiative analysis and graphs that I could find.
2. The IFS Deaton Review, does source an interesting supporting analysis, buried in a footnote, p.3: “See Jenkins (forthcoming) in this Review for a detailed discussion of income inequality and its measurement”. It was virtually the only clear reference to the critical issue of measurement I identified.
4. I have found the Jenkins paper (2022). It seems to me considerably less supportive of the IFS analysis than a casual reading that takes the methodology forensics for granted, may justify. Here is what Jenkins writes in his Abstract, comprehensively borne out by his paper: “There are grounds for arguing that income inequality levels are higher, and the inequality increase over time greater, than conventional approaches indicate.” (https://repec.iza.org/dp14996.pdf).
5. I have so far been able to find no clear, express reference to the “black” economy, or the case that at the lower-tail, there must be a close, if indeterminate relationship between the grey area between the black economy and mainstream economy, or corossovers between the two economies. It seems to me this reflects an inadequacy of information at the other end of the spectrum, now being recognised because of the ostentatious example of sanctioned oligarchs. Even more worrying, the gap between ‘shadow’ banking, and ‘conventional’ banking.
That is the best I can do in haste; but i remain unconvinced by the value of IFS analysis.
This sampling method is also hopelessly inadequate at high levels of income
Thanks for this
They think that nothing can be done because they don’t have any other ideas than their own neoliberal ones. It’s pathetic.
“In the 1990s and 2000s, upper-tail inequality rose significantly but lower-tail inequality grew less, especially in the 2000s.” This is a convoluted way of saying that, during the given period, the poor got poorer at a slower rate than the rich got richer. This would have more punch, albeit less technically phrased.
Typical that this discussion should be going on as P&O sack all their employees and replace them with cheaper agency workers. Needs must I suppose – would it be better if they went straight to liquidation? – but a company that treats its employees in such a shoddy manner deserves to go out of business. I hope the workers are being properly compensated. And if not, claims for wrongful and unfair dismissal should be on the way.
This has Brexit written all over it
Other employers will be looking on with eager anticipation of what they might also do
It stinks.
Just to put this in context, DP World bought P&O Ferries in 2019 for £322m. It had originally bought P&O in 2006, and quickly sold parts of the business including P&O Ferries to its parent, Dubai World, so the 2019 reacquisition was more by way of an internal reorganisation (Dubai World was an 80% shareholder at that time, I think).
At the time, in 2019, DP World said the acquisition “was expected to be earnings accretive from the first full year of consolidation and meet its return targets”. Eg https://www.reuters.com/article/uk-dp-wrld-p-o-m-a-idUKKCN1Q90L3 Brexit was known about at the time, of course.
But in May 2020, they sacked 1100 workers, due to the COVID downturn, but just a short while after paying a £270m dividend. https://www.theguardian.com/business/2020/may/11/p-and-o-ferries-to-cut-1100-jobs-owner-pay-270m-dividends
Now they say the ferry business has been losing £100m for several years, and they need to ship in contract workers from Colombia to replace the UK workers. Let’s hope there is no impact on passenger safety, eh. (The 35th anniversary of the sinking of the Herald of Free Enterprise was a few days ago – P&O was operating it, having just bought TT.)
Hopefully, few employers will be able to follow P&O. I believe the dismissed employees are seafarers and probably not covered by UK employment laws. The position woud be very different for ordinary UK employers for whom the compensation claims arising from this would be prohibitive ( as well as the claims for reinstatement).
For P & O the reputational damage will, hopefully, be severe. Even the Tries are already objecting to their behaviour.
I struggle to understand how UK people employed by a UK company to work on ferry routes between the UK and EU members states (France, Ireland, Netherlands), mostly operating in UK or EU territorial waters not the high seas, on ships mostly registered in the EU (Cyprus, Finland, Netherlands, but a few in the Bahamas or Bermuda), are not covered by UK or EU employment law.
Failure to consult, failure to notify the authorities, no notice. It is not even as if their jobs are actually redundant – their labour will be replaced. At the end of the day, any employer can get rid of their employees if they really want to, but they might have to pay significant compensation.
Whatever the legalities, this sort of behaviour is atrocious.