The Livelihood Crisis

Many people in middle and low income jobs have barely seen any improvement in their incomes over the past 30 years, a report from the TUC says.

While those at the top have become very rich the disappearance of many middle-paid, skilled occupations and an ongoing squeeze on wages has led to a poorer, more divided Britain. In 2006–08, nearly 3 per cent of the population had zero or negative wealth (defined as all household goods and possessions including cars and owner-occupied houses after deducting financial liabilities), while 10 per cent had less than £7,390. The richest 10 per cent was more than 100 times as wealthy as the poorest 10 per cent.

Low income workers have seen their pay rise by 27% in real terms over the past 30 years but rises for the top 10% of earners have been four times higher.

Bakers' wages fell by 1%. They fell by 5% for forklift truck drivers and 3% for packers and bottlers in the same period. Some unskilled and semi-skilled jobs now pay little more in real terms – and in some cases less – than they did in the late 1970s. Low pay is now the chief cause of poverty, with the proportion of poor children in working households standing at 61 per cent.

The report, called "The Livelihood Crisis" by Stewart Lansley, a Research Fellow at the Open University, says there has been a steady growth in "bad jobs", offering poor wages and job security. It says there are almost twice as many people now earning a third less than the median compared with 1977. It added that a significant proportion of workers have received little if any financial benefit from the doubling in size of the British economy in the last 30 years.

In the area of social mobility, although many of those on low and middle incomes are in white-collar employment (while their parents were more likely to be skilled or semi-skilled manual workers), this has not always brought a rise in status or relative wages compared with the past. Despite a much more educated workforce, significant numbers have stagnated in income terms. Indeed, despite often being relatively less well paid than the jobs of the past, and being relatively menial in nature, many of today’s ‘middling jobs’ require much higher qualifications than their equivalents a generation ago.

The level of personal debt rose from 45 per cent of national income in 1981 to 160 per cent in 2007, a three and a half-fold increase. In 2009, the average UK household non-mortgage debt stood at £9,280, a mix of personal loans and credit card bills. A quarter of the population had unsecured debt of this kind.

TUC general secretary Brendan Barber said: "People often cite the recession as the source of this income squeeze but a livelihood crisis has been brewing in Britain for decades. The financial crash has exposed decades of limp wage growth offset by soaring household debt."

To encourage flexible labour markets, new constraints were imposed on trade unions and collective bargaining. Labour was made the scapegoat for the economic problems. Profitability in the new service firms depended on “the ability to cut pay, worsen working conditions, reduce hours (for example, to avoid social security overheads and the need for meal breaks) and to intensify work.” While the executives of firms enjoyed generous pay and fringe benefits along with secure employment and promotion prospects, their staff were often poorly paid and part-time, and dependent on insecure temporary or casual contracts with few employment rights. Measures were introduced to weaken unions, strengthen employers and erode collective bargaining. Wages councils were abolished, employment rights removed and strikes made much more difficult. Trade union membership fell from 13.5 million (53 per cent of the workforce) in 1979 to 6.7 million in 2009, just over a quarter of the workforce. Today only one in seven private sector workers is a member of a trade union.

Alan Budd, chief economic adviser at the Treasury in the 1980s summed up, in 1992 the multi-layered assault on inflation and the unions. “...there may have been people making the actual policy decision who never believed for a moment that this was the correct way to bring down inflation. They did, however, see that it would be a very, very good way to raise unemployment. And raising unemployment was an extremely desirable way of reducing the strength of the working classes… that what was engineered there, in Marxist terms, was a crisis of capitalism which created a reserve army of labour and has allowed the capitalists to make high profits ever since."

Although benefit levels today are roughly the same in real terms as they were in 1980, living standards have almost doubled on average. JSA – £67.50 for a single person over 25 – represents a tenth of average earnings compared with nearly a fifth in 1970. Even if allowance is made for the other benefits the unemployed can claim, Britain’s ‘replacement ratio’ – a family’s net out-of-work income as a percentage of in-work income – has fallen sharply over the last 30 years. Benefit levels are well below the OECD average, and among the lowest of any country in the developed world. Thus, for a married couple with two children with average earnings, benefit meets 53 per cent of former net earnings compared with an OECD average of 76 per cent. A similar pattern applies to pensions. Uprated in line with inflation, the basic pension has fallen sharply in relation to average earnings. The state pension for a single person would have been £158 in March 2010 – rather than £95.25 – if it had been raised in line with earnings.

Although for the TUC this report is a call to return to the welfare state, at least it begins a dialogue about a need for a fundamental change in our social system.