Prospect Magazine:
Will Britain get a payrise?
13 November 2014
What if in our relatively deregulated flexible labour market-where the balance of workplace power favours bosses, many people are engaged on flexible performance-based contracts, and new technology is sweeping away jobs that once paid well-there will never be a return to the days when workers of every type could always rely on a pay rise? Economists such as David Blanchflower, one-time member of the Bank of England's Monetary Policy Committee, and Stephen Machin, who currently sits on the Low Pay Commission which makes recommendations on the level of the hourly minimum wage, point to the experience of the United States, which gave us the blueprint for labour market de-regulation. The real median weekly wage for full-time US employees has more or less flatlined since the 1970s, proving that pay stagnation is not beyond the realm of possibility. ...
As two of Britain's leading labour market economists Paul Gregg and Stephen Machin outlined in a report published by the Resolution Foundation, a think tank, far less unemployment is now needed to bear down on inflationary wage and price pressures. ...
A flexible labour market that favours jobs over pay during tough times is clearly preferable to one that results in the economic and social pain of mass unemployment. Better still, if the economic recovery is sustained long enough to combine a continued fall in unemployment with strengthening productivity growth, we could be on the verge of the kind of labour market scenario George Osborne must dream of: full employment and rising real living standards. However, this positive picture doesn't necessarily translate into an equally rosy outlook for pay. One reason, as research by John van Reenan, Director of the Centre for Economic Performance at the London School of Economics, has shown, is that even when productivity rises employers are nowadays more likely to improve non-wage elements of reward packages-which include contributions to staff pensions and health insurance, plus employers' national insurance contributions-at the expense of pay increases.This article was published by Prospect Magazine on November 13, 2014
Link to article here
Related publications
What a drag: the chilling impact of unemployment on real wages, Paul Gregg and Stephen Machin, Resolution Foundation Report, September 2012
'Decoupling of wage growth and productivity growth? Myth and reality', Joao Paulo Pessoa and John Van Reenen, Centre for Economic Performance Discussion Paper No.1246, October 2013
Wage growth and productivity growth: the myth and reality of 'decoupling', Joao Paulo Pessoa and John Van Reenen. Article in CentrePiece Magazine, Volume 18, Issue 2, Autumn 2013
Related links
Stephen Machin webpage
Labour Markets Programme webpage
John Van Reenen webpage
Productivity and Innovation Programme webpage