No real economic change will be felt until income inequality is reduced

05 September 2013

By Sarah Glenister, IER staff

Over three years into the Coalition’s leadership, the government is now applauding itself for a mediocre rise in economic growth, which remains at a sluggish 0.7%. But the only real indicator of recovery is a long-term improvement in living standards. So how sustainable is the UK’s wealth, and how many people feel its effects?

The most critical economic driver is consumer demand – that is, the ability of the population to spend disposable income on local products and services. Businesses providing these products and services then create new jobs to meet the resulting increase in demand, and the newly employed become consumers themselves, leading to an upward spiral of increasing production and wealth. This will not happen when salaries are too low for consumers to spend, when workers rely on the State to top-up poverty wages, and when exploitative employment terms like zero-hours contracts leave people financially vulnerable and uncertain about their budgets. It is not only jobs that are needed to lift us back to prosperity, it is quality jobs.

And this is where the government’s austerity and deregulation plans have failed. Policy has been written to benefit employers, but to the detriment of workers. Putting downward pressure on wages by encouraging companies to compete on price; subsidising irresponsible employers through tax credits; making hundreds of thousands of people redundant at a time of mass unemployment – all of this is reducing economic demand. And without demand, supply withers: production falls, job creation stagnates. In the end, smaller employers lose out too. Meanwhile, shareholders and CEOs reap the rewards.

The Institute of Employment Rights (IER) believes an alternative approach to the economy, based on reducing income inequality and thus increasing the wealth of the UK’s consumers, is the best solution to creating a stronger and more sustainable economy for the future. Our latest publication – Reconstruction after the crisis: a manifesto for collective bargaining – released in conjunction with Class, advocates state encouragement of negotiation between workers and employers on wages and conditions across the UK. This process – known as collective bargaining, at both enterprise and sectoral levels – is a tried and tested means of lifting nations out of depression and creating economic resilience. Income inequality will be reduced; companies will be forced to compete on innovation rather than reducing labour costs; and low-quality employment like zero-hours contracts will become a thing of the past. The wider social and economic impacts of this are demonstrated in brief in the infographic below.

Of course, there will be cynicism about the IER’s policy proposals. Right-wing pundits and politicians will complain that wages cannot rise if employers can’t afford it. But demand can be sparked by encouraging wealthier businesses to engage in collective bargaining before smaller enterprises, following the same phased-in style of employment law implementation favoured by the present government. Some will say clearly defined sectors no longer exist in modern Britain, but the Department for Business, Innovation and Skills has already identified 12. Some may even accuse the unions of a power or wealth-grab, but under collective bargaining everybody receives higher wages, not just union members.

The Manifesto for Collective Bargaining will be launched on Sunday 8th September at TUC Congress. Authors Professor Keith Ewing and John Hendy QC, President and Chair of the IER respectively and renowned experts in public policy and employment law, will present their full policy proposals alongside guest speakers General Secretary of Unite the Union, Len McCluskey, General Secretary of NUT Christine Blower and General Secretary of RMT Bob Crow. They represent just some of the nine unions who have officially backed the IER’s policy proposals so far. Others include Unison, GMB, PCS, CWU, UCU and ATL.

We can only hope these ideas also gain the confidence of the next Labour government, and then real change will be seen.

Reconstruction after the crisis: a manifesto for collective bargaining will be launched at TUC Congress in the Branksome Suite, Bournemouth International Centre, 7pm on Sunday 8th September. Click here to find out more.