Wages and Inequality

Lesley Brennan

6 September 2013

This year has seen a speech by Christine Lagarde , the head of the IMF, in  which she


*quotes US President Franklin Delano Roosevelt approvingly :


“The test of our progress is not whether we add more to the abundance of those who have much; it is whether we provide enough for those who have too little.”


* criticises the vision of those in the private sector who see its sole or main purpose as too make money


“The goal of the private sector cannot be only profit; it must also be to add value, create jobs, develop the new ideas that drive an economy forward.”


* and calls out the financial sector for its unprincipled behaviour during the global economic crunch


“It hid too much activity in murky and dark corners, and put its own short-term gain ahead of supporting the real economy


These views represent a welcome, if belated,  change of heart from the organisation that was one of the principal cheerleaders for the austerity cuts inflicted ( and still to be inflicted) on countries across Europe.


The IMF has since called for the UK Government to bring forward £10 billion of investment in infrastructure to support economic recovery


 Tackling inequality is high on the agenda of trade unions because living standards for many people over the past thirty years wages have become more and more disconnected from the level of growth in the economy.


Wages now account for less as a share of the national income ( the Gross Domestic Product) than they did in the early 1980s.

Howard Reed in a Touchstone extra pamphlet for the  TUC – How to boost the Wage Share - sets out a series of proposals to  improve the share that wages make up of the national income with the purpose of lowering inequalities.

These include :


Using the Living Wage as the lowest threshold of pay.


The Living Wage  (£7.45p per hour outside London) is a suggested measure

whereas the lower-rate National Minimum Wage is laid down by law.


Earlier this week, Jenny Marra MSP, Scottish Labour’s Deputy Spokesperson Finance highlighted the increase in those not being paid the Living Wage in Scotland under an SNP government at Holyrood.

Local examples of examples  of moves to adopt the Living Wage have been

Richard McCready’s campaign on Dundee City Council that includes an obligation on

the council as a public employee to ensure that living wage rates are secured for

employees in businesses  in  procurement contracts with the council, and

Dundee University students' drive for all university employees to be paid at least

the Living Wage


Resolution Foundation evaluate the prospects for the extension of the Living Wage thus :

“ How much scope is there to extend living wage agreements and what are the likely effects on employment?

"Far more extensive living wage coverage could be achieved without risking jobs, with many large firms facing an impact on their wage bill as a result of introducing the living wage of less than one per cent.

“ Evidence also makes clear that firms adapt to higher wage costs in a number of ways that are less damaging than disruptive changes to employment or hours."

Reed has called for a brake on excessive pay  at the top of the income scale stating :

“  There is no real evidence that the vast increases in remuneration over the last three decades for corporate executives – particularly in the private sector – have been matched by improved company performance.”

In line with the recommendations of the High Pay Commission, the salaries of directors of top companies should be published annually, and fair top-to-bottom pay ratios established to end  the culture of soaring earnings that cannot be justified.

There are issues  that need to be addressed through employee representatives on pay boards that determine executive pay and the introduction of far fairer pay ratios between those at the top and those below.

Reed recommends a much larger role for collective bargaining  :

“There is evidence that high levels of collective bargaining have a range of economic benefits at the micro and macro level including associations with boosting skills, innovation and productivity, and more successful macroeconomic management, as well as lower inequalities” and he calls for the re-establishment of the goal of full employment which “  would not just help to create more jobs but would be an important instrument in securing decent wage growth, reducing wage dispersion and closing the wage-output gap."

Unions recognise that income inequality in this country damage the economy and the lives of working people, and that a greater incidence of collective bargaining to negotiate pay and conditions would help to secure more of the country’s national income as higher income for workers instead of profits.

All of us benefit by reducing levels of inequality .

That was the outcome of the research that became influential and famous as the book “The Spirit Level” .

Income inequality does not stand alone .

To quote Christine Lagarde of the IMF once more from her speech earlier this year :

 “Excessive inequality is corrosive to growth; it is corrosive to society.


"A more equal distribution of income allows for more economic stability, more sustained economic growth, and healthier societies with stronger bonds of cohesion and trust.”





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