WHY WAGES MATTER

by Edward Grierson

It goes without saying that the current wage situation in the UK is not good. Following the disastrous speculation on the banks’ behalf that led to the recession, real wages for UK workers fell by 10.4% from 2007-2015, a decline only matched by Greece. Even worse has been the combination of this wage drop with the continued pay gap between employees and the people who employ them: as of 2015, the salary of a UK CEO was nearly 130 times that of the average UK worker’s salary.

The reason why this is a concern, why we should be worried about falling wages, surely is obvious. Firstly, raising wages can in fact be a wise decision economically in the long term. This is due to the multiplier effect: people with higher wages have more disposable income, and thus expand the economy by spending more, something Henry Ford already understood back in 1914, when he paid his employees enough to buy a Ford Model T.

This is why wages matter: so that working people can feed, clothe and house themselves and their families without having to seek the government’s help.

But the main reason for raising wages is to do with livelihoods. Whenever economists talk about the need to drive wages down, they forget the person attached to those wages. We are only too quick to demonise “benefit scroungers”, but rarely do we look at why people might have to rely on benefits. As of last year, two-thirds of children living in poverty were from working families, according to the Institute for Fiscal Studies, so for many people living on welfare, it’s not for lack of effort. With wages in Britain being in the state they are, it is an inevitable consequence that more people will be relying on the welfare state to make ends meet, something we are currently seeing with the number of people reliant on food banks- up by over a million since 2010. This is why wages matter: so that working people can feed, clothe and house themselves and their families without having to seek the government’s help.

But here’s the catch: I’ve highlighted the problem, but I don’t know what the solution is. I certainly won’t advocate revoking all wage laws, largely because I cant see how doing so would create an incentive among businesses to raise wages. At the same time, I’m still aware that many smaller businesses will struggle to pay a higher minimum wage without having to reduce their workforce. Some people may propose replacing the minimum wage with the Ghent system, the system used in most Scandinavian countries, where wages and welfare payments are set by trade unions rather than the government.

There have been some notable success stories through this, such as McDonald’s workers in Denmark earning the equivalent of £14 an hour, however the big problem with a Ghent system in the UK is the falling union membership, with last year being the greatest drop on record. Even so, this structure would still be worth localised trials, and expanding it if it worked. So too would universal basic income, which despite the mixed results so far from past or ongoing trials, has produced some notable successes: in London in 2009, for example, thirteen homeless people were given £3000, and within a year all were in a stable personal and financial situation, with nine of them having secured some form of housing.

All these and other methods are worth looking into, but none of them seem to be the ultimate solution. But perhaps this is the point: there isn’t any silver bullet for increasing them. Higher wages are an imperative, for the sake of society’s poorest, but how we achieve this may well take many forms.

Featured image CC BY 2.0 War on Want

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