Predistribution is no silver bullet for wage stagnation

The pressures militating against wage growth are strong and will grow even stronger in the future. But public insurance offers a way forward.

'Predistribution' may be a smart approach for the centre-left, but it's likely to prove an inadequate remedy for the problem of wage stagnation facing the UK’s lower-half households. A predistributive approach would aim to address the problem without increasing government transfers. It could embrace a range of strategies. One is more and better education for children who grow up in less-advantaged circumstances. This would increase the likelihood of them finding employment in analytical fields that pay relatively well. But even if successful, it will leave a non-trivial number of people in low-end jobs.

Increasing manufacturing jobs would help, but manufacturing's share of employment has been shrinking for decades in all rich nations, and that's certain to continue. Boosting trade union membership could counteract the downward pressure on wages, but unionisation rates, too, have been falling in almost all affluent countries, and nobody has worked out how to reverse this.

A tight labour market ('full employment') puts upward pressure on wages; achieving that on a regular basis, though, would require greater tolerance of inflation by the Bank of England. The minimum wage can be raised, but it tends to have limited impact above the very bottom of the wage distribution.

Allowing employees to elect a percentage of their company's board of directors ('codetermination') could help to prevent long-term wage stagnation, yetfirms won't opt for this unless it is required by law. Profit-sharing would ensure that pay increases when company profits rise, but here too the uptake is likely to be small.

Rising employment is a way to boost household incomes even if wages are stagnant. However, it's by no means a given that we can continue to generate employment growth. Also, not all low-end households will benefit from a rising employment rate. And even if this strategy works well, it will eventually hit a ceiling; once we reach maximum employment – perhaps 85 per cent of working-age men and 80 per cent of working-age women – there will be no more possibility of relying on rising employment to secure rising incomes.

Finally, a means of improving material wellbeing even if wages and employment are stagnant is to increase provision of public goods and services. From paid parental leave and childcare to spending on roads and parks, these increase the sphere of consumption for which the cost to households is minimal or zero.

Pursuit of the more promising elements of a predistributive approach would undoubtedly do some good. But I'm sceptical that such an approach will be up to the task. The pressures militating against wage growth in lower-half jobs– competition, globalization, technology, nearsighted shareholders ­– are strong, and in all likelihood they will grow even stronger going forward. We may need to do more. Fortunately, we have another option.

Public insurance is a widely used tool for mitigating economic and social risks. Schools, government-financed health insurance, public pensions, unemployment compensation and most government transfers are versions of public insurance. We contribute collectively via taxes, and those who experience the risk event or condition receive transfers or services.

Through this lens, wage stagnation is a new social risk. There is a simple insurance mechanism for alleviating it: an employment-conditional earnings subsidy, along the lines of the UK's working tax credit (gradually being replaced by universal credit) and the US earned income tax credit. These programmes provide a subsidy, in the form of a refundable tax credit, to households with low earnings. The amount of the subsidy increases with earnings up to a point, then flattens out, and then decreases as earnings reach into the middle class.

These employment-conditional earnings subsidies help to compensate for low wage levels, but in their current form they don't address the problem of wage stagnation. To do the latter, the amount of the subsidy needs to rise over time in sync with economic growth. One way to achieve this would be to index it to GDP per capita. Or, decisions about yearly changes could be entrusted to an independent commission.

This won't compensate fully for wage stagnation. If the subsidy amounts to a quarter or even half of a household's earnings and the subsidy rises in line with the economy but earnings don't, then the household's income (earnings plus subsidy) growth will lag behind growth of the economy. It's a partial remedy, not a full solution. But it will help.

What, then, should we do – predistribution or public insurance? If forced to choose between the two, I would opt for defending and expanding employment-conditional earnings subsidies. But over the long run, we ought not think in terms of one or the other. We'll very likely need both.

Lane Kenworthy is professor of sociology and political science at the University of Arizona. A full version of this article is published by IPPR in Juncture.

Ed Miliband at the Labour conference in Brighton last month. Photograph: Getty Images.

Lane Kenworthy is professor of sociology and political science at the University of Arizona

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“I felt very lonely”: addressing the untold story of isolation among young mothers

With one in five young mothers lonely “all the time”, it’s time for employers and services to step up.

“Despite having my child with me all the time, I felt very lonely,” says Laura Davies. A member of an advisory panel for the Young Women’s Trust, she had her son age 20. Now, with a new report suggesting that one in five young mums “feels lonely all the time”, she’s sharing her story.

Polling commissioned by the Young Women’s Trust has highlighted the isolation that young motherhood can bring. Of course, getting out and about the same as you did before is never easy once there’s a young child in the picture. For young mothers, however, the situation can be particularly difficult.

According to the report, over a quarter of young mothers leave the house just once a week or less, with some leaving just once a month.

Aside from all the usual challenges – like wrestling a colicky infant into their jacket, or pumping milk for the trip with one hand while making sure no-one is crawling into anything dangerous with the other – young mothers are more likely to suffer from a lack of support network, or to lack the confidence to approach mother-baby groups and other organisations designed to help. In fact, some 68 per cent of young mothers said they had felt unwelcome in a parent and toddler group.

Davies paints what research suggests is a common picture.

“Motherhood had alienated me from my past. While all my friends were off forging a future for themselves, I was under a mountain of baby clothes trying to navigate my new life. Our schedules were different and it became hard to find the time.”

“No one ever tells you that when you have a child you will feel an overwhelming sense of love that you cannot describe, but also an overwhelming sense of loneliness when you realise that your life won’t be the same again.

More than half of 16 to 24-year-olds surveyed said that they felt lonelier since becoming a mother, with more than two-thirds saying they had fewer friends than before. Yet making new friends can be hard, too, especially given the judgement young mothers can face. In fact, 73 per cent of young mothers polled said they’d experienced rudeness or unpleasant behaviour when out with their children in public.

As Davies puts it, “Trying to find mum friends when your self-confidence is at rock bottom is daunting. I found it easier to reach out for support online than meet people face to face. Knowing they couldn’t judge me on my age gave me comfort.”

While online support can help, however, loneliness can still become a problem without friends to visit or a workplace to go to. Many young mothers said they would be pleased to go back to work – and would prefer to earn money rather than rely on benefits. After all, typing some invoices, or getting back on the tills, doesn’t just mean a paycheck – it’s also a change to speak to someone old enough to understand the words “type”, “invoice” and “till”.

As Young Women’s Trust chief executive Dr Carole Easton explains, “More support is needed for young mothers who want to work. This could include mentoring to help ease women’s move back into education or employment.”

But mothers going back to work don’t only have to grapple with childcare arrangements, time management and their own self-confidence – they also have to negotiate with employers. Although the 2003 Employment Act introduced the right for parents of young children to apply to work flexibly, there is no obligation for their employer to agree. (Even though 83 per cent of women surveyed by the Young Women’s Trust said flexible hours would help them find secure work, 26 per cent said they had had a request turned down.)

Dr Easton concludes: “The report recommends access to affordable childcare, better support for young women at job centres and advertising jobs on a flexible, part-time or job share basis by default.”

Stephanie Boland is digital assistant at the New Statesman. She tweets at @stephanieboland