Who ate all the pie?

The impact of rising pay inequality will be felt throughout the UK economy.

You probably won't be too surprised to hear that for a long time many workers have been receiving an ever smaller portion of the fruits of economic growth. But if we are to properly understand the 'trickle-up' tendencies of British capitalism we need to not only register the depressing headline but get under the surface of what brought it about.

A new report out today does exactly that: it shows that there has been a sharp fall in the share of GDP going to those in work on below average earnings at the same time as the highest earners have received an ever larger share of the national economic pie. This is not just about stagnant wages over recent years - though that has made matters worse. This runs deeper. Over a generation the wages of the bottom half of the working population have shrunk to 10 per cent of GDP, whist the top 1 per cent have seen a 50 per cent increase in their share.

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Source: Resolution Foundation 2011

So far, so predictable, you may think. But the explanation of this challenges some popular assumptions. One view, firmly held by some on the left, is that the long-term decline in wages as a share of GDP is simply the flipside of more of our national income taking the form of corporate profit. There is some truth in this - it is estimated that it accounts for around 10 per cent of the long-term wage squeeze experienced by the bottom half of earners - but this is not nearly as much many people think. (And the share of 'profit' in national accounts is if anything over-stated as it also reflects payments to the growing army of the self-employed - which isn't really what most people think of 'capital').

Another view, more often heard from those on the right and from business, is that workers' wages have been under pressure because of rising burdens on employers, such as higher national insurance contributions, which have borne down on pay. These costs have certainly risen. But again, this can be overstated: it accounts for an estimated 15 per cent of the reduced share of GDP paid out in wages to those on below average earnings.

A more predictable, and potent, explanation of why the bottom half of workers have been losing out involves rising pay inequality: of the total sum paid out in wages, a far greater share is now going to the top half of earners than used to be the case -- and within the top half, it is the top 10 per cent that have done best, and within the top 10 per cent it is the richest 1 per cent who have really cleaned up. Not surprisingly if we focus on changes in wages since the late 1990s then the role of the finance sector is key, with a staggering proportion of all of the gains to the top 10 per cent of earners in Britain flowing to a small number of people in that sector.

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Source: Resolution Foundation 2011

Take a longer view of pay inequality, going back to the 1970s, and a slightly different picture emerges. Part of the increase reflects the fact that jobs have gravitated over time from relatively 'equal' sectors like manufacturing into 'unequal' sectors like finance. But the bigger story is that almost all sectors have contributed to the rise in pay inequality: we can't pin it all on bankers. Regardless of where you work, the gap between the top and bottom is likely to have grown.

Shining a light on these trends helps focus minds on the long-term prospects for low-to-middle earners within our economy. Of course, some will just shrug their shoulders at all this. For them, growing economic inequality amongst the working population is simply what happens in advanced market economies - get over it. But many economists - and not just those on the left - are increasingly unsettled about where all this is headed. After all, you don't exactly have to be a class warrior (or even a social democrat) to believe that a country in which the wage share of the bottom half of earners is constantly falling is likely to be an increasingly volatile one: both in the economic sense, as ever more people consume all they earn, fail to save for the future, and rely on debt to try and ensure their living standards rise in line with the wider economy. And volatile in a wider political sense too. If a generation grows up believing that there is likely to be little personal gain from economic growth then they may not think the policies (and parties) that advocate the measures that generate higher prosperity are desirable or even legitimate.

Equally, you don't have to be a free-market fundamentalist to question the feasibility of the state doing ever more to compensate for escalating wage inequality through more redistributive tax and benefit policies. My own view is that there is very little prospect of the next Labour government -- or any other government for that matter - doing much more to reduce inequality via redistributive tax and benefit policies than was the case prior to 2010. This means that those who worry about inequalities in long-term living standards need to shift from a narrow focus on tax and benefit policies to the much thornier issues of achieving rising real wages and employment rates.

Anyone who claims to want a rising-tide economy, in which the gains from growth are widely shared, must recognise that this can't mean the bottom half of wage-earners being left with an ever smaller slice of the pie. Whatever tomorrow's much anticipated GDP figures turn out to be, this is the real economic question of our times. Business as usual won't do.

Gavin Kelly is chief executive of the Resolution Foundation.

Gavin Kelly is a former adviser to Downing Street and the Treasury. He tweets @GavinJKelly1.

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Labour is a pioneer in fighting sexism. That doesn't mean there's no sexism in Labour

While we campaign against misogyny, we must not fall into the trap of thinking Labour is above it; doing so lets women members down and puts the party in danger of not taking them seriously when they report incidents. 

I’m in the Labour party to fight for equality. I cheered when Labour announced that one of its three Budget tests was ensuring the burden of cuts didn’t fall on women. I celebrated the party’s record of winning rights for women on International Women’s Day. And I marched with Labour women to end male violence against women and girls.

I’m proud of the work we’re doing for women across the country. But, as the Labour party fights for me to feel safer in society, I still feel unsafe in the Labour party.

These problems are not unique to the Labour party; misogyny is everywhere in politics. You just have to look on Twitter to see women MPs – and any woman who speaks out – receiving rape and death threats. Women at political events are subject to threatening behaviour and sexual harassment. Sexism and violence against women at its heart is about power and control. And, as we all know, nowhere is power more highly-prized and sought-after than in politics.

While we campaign against misogyny, we must not fall into the trap of thinking Labour is above it; doing so lets women members down and puts the party in danger of not taking them seriously when they report incidents. 

The House of Commons’ women and equalities committee recently stated that political parties should have robust procedures in place to prevent intimidation, bullying or sexual harassment. The committee looked at this thanks to the work of Gavin Shuker, who has helped in taking up this issue since we first started highlighting it. Labour should follow this advice, put its values into action and change its structures and culture if we are to make our party safe for women.

We need thorough and enforced codes of conduct: online, offline and at all levels of the party, from branches to the parliamentary Labour party. These should be made clear to everyone upon joining, include reminders at the start of meetings and be up in every campaign office in the country.

Too many members – particularly new and young members – say they don’t know how to report incidents or what will happen if they do. This information should be given to all members, made easily available on the website and circulated to all local parties.

Too many people – including MPs and local party leaders – still say they wouldn’t know what to do if a local member told them they had been sexually harassed. All staff members and people in positions of responsibility should be given training, so they can support members and feel comfortable responding to issues.

Having a third party organisation or individual to deal with complaints of this nature would be a huge help too. Their contact details should be easy to find on the website. This organisation should, crucially, be independent of influence from elsewhere in the party. This would allow them to perform their role without political pressures or bias. We need a system that gives members confidence that they will be treated fairly, not one where members are worried about reporting incidents because the man in question holds power, has certain political allies or is a friend or colleague of the person you are supposed to complain to.

Giving this third party the resources and access they need to identify issues within our party and recommend further changes to the NEC would help to begin a continuous process of improving both our structures and culture.

Labour should champion a more open culture, where people feel able to report incidents and don't have to worry about ruining their career or facing political repercussions if they do so. Problems should not be brushed under the carpet. It takes bravery to admit your faults. But, until these problems are faced head-on, they will not go away.

Being the party of equality does not mean Labour is immune to misogyny and sexual harassment, but it does mean it should lead the way on tackling it.

Now is the time for Labour to practice what it preaches and prove it is serious about women’s equality.

Bex Bailey was on Labour’s national executive committee from 2014 to 2016.