Blog: we can’t do more for low-paid workers without tackling excess pay at the top
recognition of low-paid workers is welcome, but for things to change, we need tough choices not warm words. Changes to corporate governance structures, stronger trade union rights and more progressive taxation
There’s a growing recognition that it’s mostly lower-paid workers that are preventing the country from falling apart completely as a result of the current crisis, and that the way we value people in this country is wrong.
Jeremy Corbyn made this point most forcefully in the Parliamentary debate on the coronavirus but his statement quoted the Conservative MP Kit Malthouse, demonstrating a degree of consensus on the issue.
“When we emerge from this crisis… there will be a general reassessment about who is important in this country and what a ‘key worker’ means”
The intuitive sense that it’s the lowest-paid workers doing the most right now is supported by new data from the Autonomy think tank showing a correlation between lower pay and higher risk of coronavirus infection at work
Autonomy calculated a Risk Indication Factor for 273 different occupations, based on their exposure to disease and physical proximity to others. They found that
“simply put, moving down pay brackets leads to a higher RIF: the less you get paid, the more at risk you are, generally speaking.”
Unfortunately, all the well-intended words about raising the pay and working conditions of low paid workers will be completely meaningless if we are not prepared to accept that this will be mean sacrifices by the better off. We don’t live in a world of infinite wealth and if a painless pay increase for low and middle earners could be conjured up at no cost to anybody else, it would probably have already happened by now. There is less sign of a consensus that the “re-assessment’ foreseen by Kit Malthouse will recognise this reality.
The pay gap between those at the top and everybody else in the UK is more pronounced than in almost any other developed country.
Amongst the OECD group of advanced economies, we rank 32nd out of 40 for equality of income. Of European OECD members, only Bulgaria and Lithuania are more unequal. Most of our Western European neighbours including France, Germany and the Scandinavian countries are far more equal.
Low pay is often situated in a debate about productivity. Education, skills and business investment are seen as the tools for raising workers’ output and thus their pay. But the OECD statistics show that as well as productivity, we need to think about power.
The fact that so many comparable economies have lower inequality, meaning that rich people in those countries are paid a little less and poorer people earn a bit more, shows the potential for fairer distribution to raise UK incomes.
Pay isn’t necessarily a zero sum game where less for those at the top means more for everyone else. But, it would be naïve to think that there is no relationship between the two. The share of total incomes going to the richest 1% in the UK has increased by nearly a third since the mid 1990s. It seems unlikely that this growth is entirely comprised of additional value created by the rich. The relationship between the growing share of incomes captured by the top 1% and the decline of trade union coverage hints that as the bargaining power of lower and middle earners has weakened, the rich have grabbed a bigger share of existing value, or growth that would have happened anyway.
Even centre-right parties in the North Western European economies that outperform Britain in terms of economic equality (and may other quality of life indicators besides) appear to have a better understanding of the importance of distribution than has been applied by policymakers in the UK. And given that growth has been consistently slowing since the 1960s, how we share what we already have is going to become increasingly critical.
Employment practices in our more equal neighbours typically involve higher levels of trade union membership and/or collective bargaining coverage, where pay levels are agreed collectively rather than individually. This gives low-paid workers much greater negotiation power, and reduces their perceived dispensability (employers can afford to lose one supposedly unskilled worker by denying them a payrise, but not their entire workforce).
Workers rights are supplemented by worker representation on company boards, while in the public sector, higher levels of taxation and public spending means there are greater resources for the public services in which many of the low-paid workers identified by Autonomy are employed.
Similar measures could make a big difference to the UK workers putting their health at risk to get us through the coming weeks and months. The coronavirus has highlighted the scale of injustice in this country and prompted a collective attack of the conscience. We need to remember that it doesn’t result from immutable laws of nature, but from policy choices that can easily be changed.
Since 1 January 2020 the average FTSE 100 CEO has earned:
Income inequality in the UK
Wealth inequality in the UK
- COVID19 and corporate resilience
The pandemic is highlighting the deep flaws in the UK’s corporate governance system. Will this prompt listed companies to rethink their priorities? - A blog by Rachel Kay, a researcher at the High Pay Centre
- Executive Compensation: Covid-19—A “New Normal” Or Back To The “Old Normal” by 2022?
A guest blog from Iain Stark, international HR leader and reward expert, on the future of executive pay post COVID19.
- Re-thinking reward: interim High Pay Centre analysis of new pay ratio reports
Our analysis of the first 'pay ratio' reports finds some limitations to the disclosures, but also identifies the potential to raise pay for low earners through redistribution from those at the top