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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All doctors kill people – and the threat of prosecution is bad for everyone

We must recognise the reality of medical practice: just because a doctor makes a mistake, that doesn’t mean they’ve all broken the law. 

On 15 November the Court of Appeal quashed the 2013 conviction for gross negligence manslaughter (GNM) of a senior consultant surgeon in London, David Sellu. Sellu, who had completed his prison term by the time the appeal was heard, will never get back the 15 months of his life that he spent in jail. Nor will the personal and family trauma, or the damage to his reputation and livelihood, ever properly heal. After decades of exemplary practice – in the course of the investigation numerous colleagues testified to his unflappable expertise – Sellu has said that he has lost the heart ever to operate again.

All doctors kill people. Say we make 40 important decisions about patients in a working day: that’s roughly 10,000 per annum. No one is perfect, and medical dilemmas are frequently complex, but even if we are proved right 99 per cent of the time, that still leaves 100 choices every year where, with the benefit of hindsight, we were wrong.

Suppose 99 per cent of those have no negative consequences. That’s still one disaster every 12 months. And even if most of those don’t result in a fatal outcome, over the course of a career a few patients are – very regrettably – going to die as a result of our practice. Almost invariably, these fatalities occur under the care of highly skilled and experienced professionals, working in good faith to the very best of their abilities.

If one of these cases should come before a crown court, the jury needs meticulous direction from the trial judge on the legal threshold for a criminal act: in essence, if a doctor was clearly aware of, and recklessly indifferent to, the risk of death. Sellu’s conviction was quashed because the appeal court found that the judge in his trial had singularly failed to give the jury these directions. The judiciary make mistakes, too.

Prosecutions of health-care professionals for alleged GNM are increasing markedly. The Royal College of Surgeons of England identified ten cases in 2015 alone. This must reflect social trends – the so-called “blame culture”, in which we have come to believe that when a tragedy occurs, someone must be held responsible. In every one of these cases, of course, an individual’s life has been lost and a family left distraught; but there is a deepening sense in which society at large, and the police and Crown Prosecution Service (CPS), in particular, appear to be disconnected from the realities of medical practice.

Malpractice investigation and prosecution are horrendous ordeals for any individual. The cumulative impact on the wider health-care environment is equally serious. In a recent survey of doctors, 85 per cent of respondents admitted that they were less likely to be candid about mistakes, given the increasing involvement of the criminal law.

This is worrying, because the best way to avoid errors in future is by open discussion with the aim of learning from what has gone wrong. And all too often, severely adverse events point less to deficiencies on the part of individuals, and more to problems with systems. At Sellu’s hospital, emergency anaesthetic cover had to be arranged ad hoc, and this contributed to delays in potentially life-saving surgery. The tragic death of his patient highlighted this; management reacted by putting a formal rota system in place.

Doctors have long accepted the burden of civil litigation, and so insure themselves to cover claims for compensation. We are regulated by the General Medical Council, which has powers to protect patients from substandard practice, including striking off poorly performing doctors. The criminal law should remain an exceptional recourse.

We urgently need a thorough review of the legal grounds for a charge of GNM, with unambiguous directions to the police, CPS and judges, before the spectre of imprisonment becomes entrenched for those whose only concern is to provide good care for their patients. As Ken Woodburn, a consultant vascular surgeon in Cornwall who was accused and acquitted of GNM in 2001, has said: “You’re only ever one error away from a manslaughter prosecution.”

This article first appeared in the 01 December 2016 issue of the New Statesman, Age of outrage