Wealth redistribution has to become the key priority in our fight against austerity, insists Susan Newman

Mainstream media has presented the stagnation of workers’ wages in the period of post-crisis recovery as a puzzle. Why would real wages be stagnant when UK unemployment rates are at a 42 year low?  Why are wages falling as CEO pay reach record levels? One explanation offered is the so-called productivity puzzle: the observation that productivity in the UK economy has fallen below its pre-crisis trend and behind that of other leading economies such as Germany and France. How can companies pay workers more if the output produced by each worker is low and rising very slowly?

These explanations fail to explain the secular decline in workers’ wages that began in the 1970s, more than 3 decades before the collapse of Lehman Brothers. The phenomenon of ‘decoupling’ between productivity and mean hourly wages is widespread across OECD countries. Productivity and wage rates had historically risen together, as predicted by mainstream economists. But, from the early 1980s, the trend in real wages had flattened off as productivity and GDP per capita continued to rise. The slice received by workers was getting smaller as the pie itself got bigger. 

In the UK, the decoupling has been brought about by: the abandonment, by Thatcher’s government, of full employment as the central macroeconomic policy target; the weakening of trade unions and collective power in wage bargaining following the defeat of the Miners’ strike and anti-union legislation of subsequent Conservative governments; as well as labour market policies and business practices that affect wage growth, such as inadequate minimum wage levels, limited workers’ protection and the absence of statutory rights to overtime rates of pay or time off during bank holidays. 

People in the UK are working more for less. 60% of the people in poverty in the UK are in working families. The BBC recently reported on research that suggested that “low-earning parents working full-time are still unable to earn enough to provide their family with a basic, no-frills lifestyle”. The National Living Wage is insufficient for meeting basic needs. A decade of austerity has ravaged society. Welfare cuts and stagnant wages has driven low income families to borrow for basic day to day expenditures. Consumer debt in the UK reached record levels in July of £213bn. In spite of the collapse of Wonga, households will continue to seek out high cost pay day lenders out of desperation.

Wage stagnation and income inequality are not only adversely affecting the poorest in society. According to Danny Dorling, we have reached a situation of “peak inequality”, marked not only by the gap between the top 10% of income earners and the rest but also inequality within the bottom 90%. The erosion of real wages and working conditions has adversely affected those in traditionally comfortably paid professions such as in teaching and health care where stress and poor mental health are at epidemic proportions. Gender and racial pay gaps are closing at a snail’s pace and there is no evidence for a narrowing in the earnings gap (which takes into account the racial and gendered division of labour across occupation).

Wage stagnation and inequality stem from a system of capitalist exploitation that is premised upon, and benefits from, divisions in society. Whilst we should absolutely demand for more progressive labour legislation, we need to recognise the real root of the problem. Decoupling of wages from productivity and worsening inequality is a global phenomenon. We need radical change to the economic system based on international solidarity and democratic participation in the building of a society that is organised to meet the needs of all and not in service of profit.