Published on 27 May 2011

Britain’s economic emergency: flatlining living standards and low-skilled men

There is an economic emergency among Britain’s low skilled men, which political classes haven’t noticed, or don’t care about. That was my gut reaction as I chaired the launch of an impressive new report from Britain’s sparkiest new think tank, the Resolution Foundation.

The report, Growth without Gain? is a scene setter outlining some startling trends in the AngloSaxon economies. The central graph shows that since the mid 1970s, the stellar growth in The US economy has completely failed to drag up median male income. I reproduce it below:

That is an established trend. The issue is you can begin to sniff something similar in Britain, particularly over the past half decade, something likely to continue for another half decade. It isn’t something that is inherent to Western economies. All this is detailed in the report.

You could call this the Great Stagnation, you could call it the Disastrous Decoupling, you could call it Growth without Gain. What it definitely is, though, is deeply bad news for a massive swathe of Britain.

There’s obviously more than one reason. Technological change might be blamed, in shifting the demand for low-skilled labour relative to high skilled. Trade too would explain some of this. Immigration has to be considered: as we discovered with yesterday’s ONS analysis, 20% of low skill jobs are now filled by migrants versus 9% in 2002. You could blame the decline in union collective bargaining. It could be painted as utterly inherent of modern day capitalism.

So the question is: “should we do anything about it?” Britain’s political theology for the past 30 years would suggest not. The existence of low pay in and of itself should not be seen as a problem. As long as there is churn in these numbers and the low paid can become high paid, and absolutely people are becoming better off, it’s all fine, innit?

So what could be done about it? Here is one massive structural problem in UK politics. The solution to issues like this has been seen by both main parties as fundamentally fiscal. If you are Labour it has been about a series of incorrigible, complex tax credits that enable backdoor redistribution that won’t wash with the Daily Mail. If you are Conservative, the answer to this problem will be about soon to be delivered tax cuts via raising the income tax allowance.

It is an approach driven by income distribution decile tables. It is an approach that says nothing about the structure of the economy. In fact it assumes that Government has no role in delivering an economy that delivers for the mass of Britons. That’s not how it works in many of the currently more successful growing economies in the world.

A Labour strategy for dealing with this might stress the social return for massive make work schemes. A Tory strategy could argue that money spent augmenting low incomes through the benefits system would be better spent encouraging mass sustainable job growth. Maybe immigration is having an impact here. Perhaps you could oblige the totemic Polish plumber to take on a British apprentice?

Consciously or not, this problem was masked in Britain by the superabundance of credit, artificially inflating people’s perceived living standards. My guess is that the Coalition will argue that raising the income tax threshold solves these problems.

I throw these ideas out there because I do not have the answers. But I do fear the right questions aren’t being asked.

And this report begins to show why.

Another important issue is how little we know about what is happening in the economy, our economic ignorance, as recently reflected upon by the Bank of England’s chief economist. More on that in another blog. But if, like me, you could feel that something didn’t smell right in the engine of the UK economy between 2002 and 2007, then this report begins to take you under the engine hood.

20 reader comments

  1. paul hyland says:

    When industry goes so do all the associated kill sets , no need for the skilled tradesmens who looked after the machinery ,

    1. neiallswheel says:

      totally. when they say ‘manufacturing is up’ i would like to see the figures. OBVIOUSLY without the percentage of weapons manufacturing. how much are the wars costing us and how much do we need to be taking the role of the drug dealer
      ….killing for self interest, selling death and destruction. herbal remedy anyone?
      can you get oil out of a bomb crater?

  2. w says:

    You could associate these thoughts with current efforts by government to make soldiering much more attractive.

    1. neiallswheel says:

      sort of agree except that theyre cutting back on the armed forces and keep on shouting TRIDENT. we have more money for trident,europe, charity and immigrants than anything else. how can the polish plumber take on an apprentice when he is going back to Poland with most of his earnings VERY SOON. The immigrant worker will live in rented house with TEN others sharing the rent to save more MONEY to go back home with. He is a temporary worker UNFORTUNATELY some of us are here for the long haul

  3. TE says:

    Global labor arbitrage and the out flow of investment dollars are the main cause. Creative destruction without the creation part in the developed world.

    Its time to treat access to home markets as though it actually has some value. Business lobbyists gave that access away for free (but they don’t give away free access to their private markets, stores or sales channels).

  4. Arthur Embleton says:

    I don’t have any hard evidence to back this up but surely a large amount of the growth in western economies like the UK is down to the margin between imported from the far east and the price they are sold on for in the shops. Some of that margin is taken up with employing staff which helps to keep the jobless figure down with low wage jobs and the rest is profit that becomes part of britians gdp figure. This gdp figure is largely made up with a few high earners that have invested in the business.

    As an anecdote is recently wanted to purchase an led light bulb. In b&q they are £25 so I found and bought the same bulb on Ebay brand new direct from china for £3 including shipping. B&Q would have been able to buy in bulk for much less. That £25 would count towards our gdp but it doesn’t improve the wages for anyone here. Only investors who may not even be based in the UK.

    This comes down to globalisations free movement of goods and capital but not of labour. The low wage earners here can’t just up sticks and move to china. We need to provide low skill jobs in this country to prevent social unrest. This will probably require a boost to our manufacturing sector.

    1. Y.S. says:

      What if China decides to sell their products here themselves and cut out the middlemen?

    2. SKA says:

      That is Exactly what the Conservatives hoped would happen. The introduction of “enterprise zones” in deprived areas and the ridiculously weak pound, they hoped, would have led to an export-driven recovery from our economic problems.

      It has obviously not happened yet. With the inevitable rise in interest rates on the horizon I doubt it will at all.

  5. shortlyredundant says:

    Thank you for at last bringing this issue out into the open.

    Another problem is the fact that work doesn’t pay. A single person working in a full time job on the minimum wage can still claim benefits because they do not earn enough to live on. This topping up of meagre wages by the government is nothing more than a hidden subsidy to big business to facilitate their low pay regime and maximise profits.

    This ‘economic model’ is unsustainable because in the end there will be no one to sell the goods to because people will not have any disposable income. Big business through its greed is killing itself.

  6. Frances Coppola says:

    Cutting taxes for low earners is a bit like giving chocolate to someone who is starving. It is a quick fix to get them spending again, which helps the economy in the short term (which in my view is mainly suffering from a serious drop in domestic demand). But unless you also provide solid well-balanced nutrition the recipients of the chocolate will eventually run out of energy and crash again. So cutting taxes alone will not do. There must also be measures to promote economic growth so that real incomes can rise.

  7. Ray Turner says:

    I’m not sure there’s any point having skills. Mine include IT and mathematical modelling, but the country doesn’t seem to want them or value them. Particularly as I’m over 50…!

    What’s the point in going to university if the only jobs available when you leave, with £30K of debt, are flipping burgers…?

    Even DC and Obama were getting some practice in the other day…!

    1. Andrew Dundas says:

      Hello Ray,
      Much sympathy here for your predicament. I took a major employer to a Tribunal to complain about indirect Age Discrimination. It turned out to be straight forward gender discrimination: the University simply wanted to employ a young woman and only interviewed those. No matter that they weren’t up to the ‘person spec’.
      The major University lost. They may not do discrimination again.
      Unless more of us complain, the feminists will continue to discriminate against middle-aged men.

  8. Philip says:

    Our obsession with free market economics has removed many of the previous low-medium skilled jobs, largely undertaken by men. Our standard of living means that men in that category can’t compete with Chinese, etc competitors. However, we have an education system (and a culture) which fails to recognise that it’s only through learning skills and being prepared to be flexible, continually learning, that will get young men out of the minimum wage “McJobs” sector. A generation of failure to address this has created a swathe of people used to living largely or wholly off benefits, without the drive & preparedness to learn of the “polish plumber”. I doubt it can just be solved by economics. The investment is also not just in education either. Before we can get anywhere we need to change what is in people’s heads, with packages of support – including further education, training, economic incentives, etc. If we don’t start to tackle it now, the problem will be carried forward to the next generation

  9. Jay says:

    Strongly suspect that GDP growth has not pulled up women’s median wages either – trends in the two figures correlate, but I doubt that’s causal.

    Instead what’s happened with women’s wages is the feminist demand for equal pay for equal work. In 1953 (index=100) women were systematically paid less than men in the same jobs. Now things may not be fixed, but they’re a lot better.

    Consequently what’s happened has been a catching up of women’s wages with men’s – producing what looks like “growth” over this period, but is only a rise from “lower than men’s” to “about even”. It’s not a growth in prosperity so much as a reduction in unfairness. It seems highly likely women’s earnings will stagnate in the same way as men’s once equal pay parity is achieved.

  10. Mike says:

    Of course there’s many people doing essential jobs (including ‘low skilled men’) whose income is inadequate relative to essential outcome. It doesn’t seem so unreasonable to me to wonder quite what it is that some of these ‘high skilled men’ do that is so significantly more essential/worthy that they get to have an adequate income and not the ‘low skilled’ upon whom they clearly depend (just wait until the weather gets bad).

  11. Andrew Dundas says:

    There were more middle-aged men in jobs in 2010 than ever before. Both proportionate to total employment. Maybe both are now falling back?
    Problems began with the Thatcher policy of shoving older workers onto ill-health & early retirements. That wasn’t properly dealt with until anti-Age Discrimination laws were introduced. But it will take years for that law to change the ‘common-sense’ towards employing older workers. Just as Sex & Race Discriminations have taken decades to partially turn around.
    Meanwhile, we still have the Albert Doolittle problem GB Shaw posed 100+ years ago and caused by too many de-motivated young men not being helped properly at school. No one cares. So that problem will continue.

  12. Michael C Feltham FFA, FFTA says:

    Ah! You’ve realised at last!

    A successful economy cannot be predicated upon property price speculation and multiple retailing of imported good.

    Britain’s core failure was to lack industrial activity creating export value to add to the UK’s wealth pot: which is precisely why capital had to be imported from the global capital markets to fund the last house price boom and consumer credit insanity. As Peston, amongst others, pointed out.Simply because Britain had failed to throw off significant and mounting capital profit surplus.

    Here’s my analysis from back in 2004:

    http://axisoflogic.com/artman/publish/Article_9508.shtml

    Another simple reality is one cannot export houses! Compare UK PLC to Korea, Taiwan and now China. Examine their Balance of Trade stats and residual sovereign wealth pots.

    The Thatcher-Lawson Boom-Bust created work opportunities for the unskilled: as did the even more insane Blair-Brown Boom Bust.

    Now we live with the consequences.

    But who am I? Not a banker; a politician or a media celeb “Expert”: rather a fairly simple guy whose forecasts and analyses have been pretty right on the button for 30 odd years…..

  13. Andrew Dundas says:

    Is it true that “Another simple reality is one cannot export houses!”
    Suppose wealthy foreigners buy million pound homes in London. Wouldn’t that count as some kind of export?

  14. Michael C Feltham FFA, FFTA says:

    Not really: all this represents is an import of capital in a fairly rare situation.

    All apart it is selling what already exists: rather than creating new real value. Which is what the much vaunted City does. Buying and Selling what already exists.

    In any case, far too much of Britain has already been sold to foreign interests: from water companies, electricity generators to major corporations and airports.

    Once one has sold a thing once, then it cannot be sold again: and the majority of value in real estate in UK is land: not added value from work.

    Industrial activity replicates identical artifacts in volume: adding value and creating real jobs.

    Which is precisely why China, South Korea, Taiwan and Japan sit on such vast foreign exchange reserves and Western government’s debt instruments: all from creating and exporting real value.

    Consider the metrics here:

    http://axisoflogic.com/artman/publish/Article_28484.shtml

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