How the UK could transform worker pay and job security

Australia and New Zealand are pioneering new labour market institutions to raise standards. 

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The Conservatives are spending this election campaign celebrating record employment. The Labour Party is spending it deriding the UK’s lousy pay performance, and high levels of insecure work.

These contrasting pictures are both true: we have a very tight labour market, but the issue of job quality remains. Our flexible labour market has enabled the recent jobs boom — and shouldn’t be undermined — but the question we need to ask now is how we can use the backdrop of a tight employment market to improve job quality.

So where might we look for answers to the UK’s job quality issues? First, don’t take a tight labour market for granted. This is how we’ve managed to return pay growth back to near pre-crisis norms, despite our ongoing productivity disaster, and halt the rise in insecure work. The biggest gainers from Britain’s jobs boom have been lower income households — “job inequality” has fallen. But there are signs that the labour market is turning. Maintaining full employment must be a priority. It makes all other interventions much easier.

Second, be honest that problems remain. The past decade has been a disaster for pay — average pay today is lower than it was before the 2008 crash. Insecure work remains persistently high. Staff training rates have been falling for two decades. Workplace stress for low-earners has increased substantially, and work intensity has risen too. These problems need to be tackled.

Third, let’s raise the level of political debate on the jobs market. It’s positive that both main political parties now support a higher minimum wage. But we also need action to support higher minimum standards, and a higher median wage.

The recent Taylor Review showed that Theresa May’s government at least grasped the need to boost job quality. But, frankly, the debate has not moved on since. There is a mismatch between the importance workers place on access to training, progression, pay and hours security, and their position on politicians’ priority lists.

In looking for answers on how to boost pay and job quality, we need first to understand our history. In previous decades, collective agreements between trade unions and employers had a bigger hand in shaping job quality. Over three in five UK employees were covered by collective agreements as recently as the mid-1980s. Today, just one in four are. Exclude the public sector, and just one in seven retail workers are covered by collective agreements, while fewer than one in twenty hospitality workers are. This isn’t an argument for returning to the industrial relations model that the UK previously abandoned but, clearly, a stronger role for unions or other pay-setting institutions is central to raising standards across hundreds of sectors and occupations.

So, while the UK is not thinking enough about these issues, the good news is that other countries are. And new RF research published today highlights how other Anglo-Saxon economies are seeking to build labour market institutions that raise labour standards.   

In Australia, a wage board sets 122 detailed industry level “awards” detailing minimum rates of pay at different bands. It also sets rules for many other features of employment contracts, including breaks, hours of work, shift patterns and overtime rates.

In New Zealand, a new system of sectoral collective bargaining is being considered by the government. An independent commission has proposed a system of Fair Pay Agreements (FPAs) — which would cover a similar ground to Australia’s awards with the addition of standards on skills and training. These would be bargained for in industries in which at least 1,000 or 10 per cent of workers are in favour of bargaining being initiated, a relatively low threshold.

In the US, sectoral collective bargaining has been prohibited under federal law since 1935. But this hasn’t stopped a vibrant discussion among candidates for the Democratic presidential nomination about the different means by which it might be implemented. Alongside this, prominent economists have started to explore the practicalities of rolling out such policies.

We need to think bigger when it comes to reforms to our jobs market. And just as the UK is leading the way when it comes to ambition for the minimum wage, we need to learn from other countries when it comes to new ways of boosting job quality and pay for workers throughout the labour market.

Dan Tomlinson is a research and policy analyst at the Resolution Foundation