GLOBAL TRENDS IN WAGES: CAUSES & EFFECTS ON GROWTH BILL WELLS: DEPARTMENT FOR BUSINESS, INNOVATION & SKILLS: DISCUSSANT

The UK, along with the US is one of the most open economies in the world. Therefore it is amongst the most likely to be affected by globalisation…

…and it is a similar story in the labour market which is also one of the most open and least regulated in the world.

In general, the UK tends to be believe that free trade has been one of the main driving forces of the five-fold increase in growth and the labour share over the past 65 years.

The effect of free trade is ambiguous as increased competition may, for example, reduce monopoly power in labour or capital. And the erratic movements in the UK labour share suggest that it is not the sole determinant.

The labour share can also be made up in many different ways The labour share can also be made up in many different ways. For example, wages – rather than employment – make up a greater proportion of the labour share than in the US.

…and the OECD estimate that the take home pay of the UK is 2nd only to Switzerland.

Employment rate movements also suggest that free trade is not the major determinant of labour share. In the UK have shown a structural improvement from the mid 1980s trough whereas in the US it appears that there has been a structural deterioration in the 2000s.

…and the UK’s improvement builds on the its existing above average employment performance.

Policies & institutions are at least as important as globalisation Policies & institutions are at least as important as globalisation. For example, the low paid in the UK have seen above average wage rises since the introduction of (a moderate) National Minimum Wage in 1999…

…and since 2007, the UK implementing the OECD Job Study Review proposal of cutting taxes for the low paid… [NB 2013 Budget measures not incorporated.]

…and, hence both increasing the take home pay of the low paid and also reducing the cost of their labour.

Similarly, the re-introduction of the welfare to work ‘activation’ regime from Restart in 1986 has been a major contributor to the improvement in the employment rate both by ensuring that people on unemployment benefits look for work and by increasing the effectiveness of their job search;…

…whilst the extension of welfare to work policies to people on inactive benefits has helped to reduce the numbers on these benefits to their lowest levels of 20 years; …

…and also the ’activation’ of older workers including through the equalisation of state pension age…

…and promoting more people above the state pension age to stay or move back into the labour market…

So, with employment rates of lone parents, the disabled & older workers all rising – including in the recession – welfare to work policy rather than globalisation, characteristics or demand seem to be the main driver.

Other structural features such as the policy to promote staying on rates in education also seem to be important…

…whilst there is still more work to do on the transition from education to work.

CONCLUSIONS Free trade and the opening up of market economies have been one of the drivers of growth and employment in the Post-War period. There are other factors affecting the labour share other than globalisation. And even the effect of globalisation itself is ambiguous. Labour market policies & institutions are an important factor and the 2006 OECD Job Study Review identified the UK as a ‘successful employment performer’. Since then strongly progressive tax cuts and the extension of successful ‘activation’ policies to people on ‘inactive’ benefits have improved the structure further. And it is the low paid and the most disadvantaged that have benefited the most.