Hammering the foundations of prosperity...
The New Economics Foundation (nef) and The University of Greenwich have recently published a new economic case for trade unions. Entitled Working for The Economy, it is a detailed and numerate assessment in the decline of trade unions over the twentieth century and the policy impacts that conflict has caused.
The report also makes a strong case for their resurgence, arguing that as a ‘wage driven’ economy, the UK benefits from the rise in wages and conditions attributed to strong work place representation.
The report is keen to stress that, although wages and salaries are a cost to business, it is too simplistic to discount the purchasing power extended to workers through their ability to consume. ‘If wages fall as a share of income, it implies a shrinking market. The result is a drag on profiits and growth‘.
This is an important principal consideration. The idealogical defeat of collective bargaining and the suppression of wage costs by owners of capital, in itself, diminishes the very market they are attempting to exploit.
The detail below illustrates the fall of ‘wage share’ across Europe in the last fifty years…
For every 1% reduction in the share of national income going to wages, UK national income – measured by GDP – is reduced by 0.13%, or £2.21bn at current values. Wage share has declined from its 1975 peak of 76% to an historic low of 67% today; this has had a direct impact on national income.
This governmental suppression of trade union activity has seen workforce membership decline from 49.9% in 1981 to 25% today.
The widely held notion that the UK is a profit driven economy, the report argues, is false. It is a wage driven economy and the death of collective bargaining and wider employee representation has increased inequality and staggered our national economy as a result.
The detail below illustrates the collapse of union membership…
The report looks at both the decline of trade union influence, ideologically diminished, against the introduction of new technology, for example. Interestingly nef argues that the much lauded technological revolution is a slighter figure than argued for by owners of capital and again echoes the decline of an empowered workforce as a deterrent effect on economic growth across Europe.
The logic is simple: wages and salaries have a dual role. As well as posing a cost to businesses, wages paid to labour also provide a market demand for output, hence higher consumption.
Put even more simply, the nef research looks at the economy in terms of Keynesian circular flow and argues that low vitality in trade unions reduces wages and brakes demand and therefore growth.
The argument in the report sparkles with clarity and is entirely in opposition to current mainstream economic thought.
…the ongoing bias of policy towards restricting trade union rights,at least partly motivated by the intention to deliver higher economic growth, is profoundly ill-conceived.
You can view, print or download a full copy of this report in pdf format here. We commend it to our readers.
Data illustrations: Drawn from the New Economics Foundation report.