Economic case for wages

I am at the Scottish Labour conference this weekend. UNISON’s motion tackles the statement in February by the UK Labour leadership on public sector pay policy and how Scottish Labour should address this issue.

 Hard pressed public service workers have already endured real cuts in living standards, loss of jobs and face continuing uncertainty. This is as a result of the ideologically inspired ConDem cuts and the subsequent Scottish Government cuts and pay policy. We argue that Labour should not embrace a pay policy that hits public service workers, particularly low paid women, who have already had two years of pay freezes and job losses.


The argument against pay cuts is usually made in the language of fairness. When bankers and others are awarding themselves fantastic bonuses and the gap between rich and poor is growing, this is of course a fair analysis.

 But we should also understand the economic case against pay cuts. In 1978 the UK wage bill represented 58% of the economy. By 2011 this had dropped to 53.8%. This means that workers are taking home £60 billion a year less than workers did 30 years ago. This gap has largely been plugged by rising household debt on the back of a housing boom, all of which contributed to the financial crash.

 This falling wage share has hit those on low and middle incomes hardest. The poorest fifth of workers are 43% worse off than they would have been if the wage share remained at 1978 levels. The loss for middle earners is 36%, while for the top fifth the loss is only 6%.

 So I would suggest that Ed Balls would do well to look at the merits of wage-led growth, based on collective bargaining and better skills, together with a broad base of well paid jobs. This is a better way to generate sustainable economic growth. I would also recommend some bedtime reading including Stewart Lansley’s ‘The Cost of Inequality’ and the TUC pamphlet ‘All in this Together?’

We should also recognise the negative economic impact these ‘austerity’ measures are having on local communities across Scotland. An approach to overall UK fiscal policy built around the idea of declining living standards for workers in public services will not be in the interests of those who work hard providing public services in Scotland, nor those who rely on them.


Whatever UK Labour decides to do, Scottish Labour has an opportunity to develop a distinct policy position in response to the cuts in public services and a Scottish pay policy that reflects the values of Scottish Labour. Such an approach will help rebuild support for Scottish Labour in our communities.