When a job is no longer enough

Today there are no shortage of institutions trying to make the world of work that more liveable. But what if a job is no longer enough to get by?

The never ending pinch

In one sense, UK workers have never had it so good. The unemployment rate is at its lowest since the 1970s, there are now more people who want to work fewer hours than more, and redundancy rates have been falling steadily over time. This is no small feat. The unemployment rate in France is double ours. In Spain it is triple.

But as Matthew Taylor emphasised in his Review of Modern Working Practices, work is more than about queues at the Job Centre. It is also about money. And here our labour market performs woefully.

The average real wage is still below its pre-crisis level in 2008, and wage growth over the last decade was the slowest in 180 years. Workers are seeing less progression than Brits at the height of the Napoleonic Wars.

Surely there is good news on the horizon? The National Living Wage rose from £7.50 to £7.83 this week, amounting to £600 a year for full-timers on the lowest salary. Across the economy, average wages grew by a substantial 2.6 percent in the year to January.

Yet for most working families, the pain of austerity continues unabated. The independent Living Wage Foundation says the new government minimum will still be insufficient to cover people’s basic needs, including housing and childcare. And that average wage rise of 2.6 percent translates into minus 0.2 percent when inflation is accounted for.

A vexing puzzle

Economists disagree over the causes of this prolonged wage freeze. Some blame employers for prioritising shareholder value and managers for lining their own pockets. 44 percent of workers in a recent RSA/Populus survey said a lack of good quality jobs was due to an unhealthy focus on profit making.

Recent commitments by McDonald’s, Aldi and Tesco to lift their wage floors shows that, when push comes to shove, many companies are indeed able to pay their staff more.

Others say fault lies with flat-lining productivity and the UK’s long tail of sclerotic firms. A third of companies have seen no rise in productivity since the turn of the century. It takes a British worker 5 days to produce what it takes a German worker 4 days.

Here, a combination of factors are at play: outdated management practices, insufficient investment in training, and low levels of technology adoption.

Still others suggest the pay freeze is due to the changing composition of the UK economy. Well paid manufacturing jobs have withered since the 1970s, with just 1 in 10 workers operating in this sector today. Analysis from the Bank of England reveals most new jobs created since 2000 have been in low pay or very low pay sectors like retail, hospitality and care.

The slow demise of labour

Implicit in each of these theories is a belief that a way out is possible. Wages and living standards, proponents argue, can be turbocharged if only we would drive up productivity, demand extra concessions from employers, embrace the latest technology, and prioritise high value industries.

Yet facing up to a lost decade of wage growth also means facing up to hard truths. And one of these may be that the once cast-iron link between jobs and economic security is breaking down irrevocably. Just ask the seven million people who live in working households but still find themselves below the poverty line.

A more illuminating explanation for our labour market troubles may be that, at a deeper level, labour is losing the battle against capital (by which we mean economically active wealth such as property, cash savings, stocks and shares, and physical assets.)

Labour’s share of national income used to be a ‘stylised fact’ – a figure that stood firm throughout the second half of the 20^th century. But the OECD estimates that between 1990 and 2009, labour’s share of GDP declined in 26 out of 30 countries for which data was available.

One reason, according to economist John van Reenen and his colleagues at MIT, is the rise of superstar firms. Their 2017 study highlighted that many markets have become ‘winner takes most’, with large companies including Amazon, Walmart and Goldman Sachs swamping their sectors. And because these firms tend to employ few people while generating extraordinary profits, the overall share of GDP to labour goes down.

Underlying the growth of superstar firms is the digitisation of the economy. When everything from music to grocery shopping to banking services is digitised, the effect is two-fold: (i) fewer workers are required to make products and services, and (ii) it becomes easier and cheaper for a handful of companies to amass huge consumer bases around the world.

Another reason is the enormous rise in property wealth, which has far outstripped wage growth. Between 2010-12 and 2012-14 alone, property wealth grew by 11 percent in the UK. Again there is an underlying and long-term trend here: a reluctance among financiers to put money into the productive economy (where people are employed) but rather a rent-seeking one (where they are not).

Putting capital to work

What does all this mean for advocates of good work? It means opening up a new flank of policy advocacy. It may no longer be enough to campaign for a living wage, to call for workers on boards, to renew the trade union movement, or to draw up an Industrial Strategy. More than this, we need to start thinking about capital and its distribution.

New ideas are surfacing to support this effort. Some propose shifting the burden of taxation from labour towards capital, perhaps through a tax on immovable property or a more robust levy on inheritances (which are set to double over the next two decades). Despite wealth’s growing importance in recent years, total wealth-related taxes have remained flat.

Others including the RSA have advocated a Universal Basic Income – an unconditional sum of money given to everyone with the goal of supporting living costs or powering a career change. Unlike some, the RSA views UBI as a complement to a pay packet rather than its full substitute (you can find our recent proposal here).

A third idea is for the UK to establish a sovereign wealth fund (SWF) – a giant investment fund that is managed by the state and which channels dividends directly or indirectly to citizens. The economist Stewart Lansley says a UK SWF could initially be financed by siphoning shares from publically listed companies, including superstar firms.

Still, we are only at the foothills of working out how to make a smooth transition to a labour-light, capital-heavy economy. Almost 5 years on from the publication of Piketty’s Capital in the Twenty-First Century and still just a handful of serious policy propositions are doing the rounds – many of which are half-baked.

As ever the reason is vested interests and a dearth of political appetite. Losers loom larger, solutions are more complex, and action often demands an international response. Yet if we are to prevent a lost decade for workers becoming two or even three – with all the political upheaval that entails – something will have to give.

But we needn’t be floored by the scale of the challenge.

At the RSA we have begun to view problems through the lens of ‘thinking like a system and acting like an entrepreneur’. On the one hand, this means agreeing that distributing capital ownership must be the broad direction of travel, while on the other it means spotting moments for incremental innovation and experimentation. Think UBI pilots, an inheritance tax freeze, or creating a mini SWF out of the proceeds from the 5G spectrum auction.

Small as these may sound, there are certainly worse places to start.