Fall of unions and rise of zero-hours led to ‘lost decade’ for pay growth

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A drop in union membership and the rise of the gig economy have contributed to a “lost decade” for wage growth and continue to pose a risk to future pay rises, the Bank of England’s chief economist has said.

Andy Haldane said on Thursday that while he sees evidence “of a new dawn” for pay growth, structural issues like a drop in collective bargaining could derail that trend.

“With wage growth picking up for the first time in a lost decade, the risks to domestic costs are now broadly-balanced, though still significant,” he said in a speech at a conference in London.

“Take unionisation. Its downward trend historically has suppressed pay growth. If this trajectory were to continue, the fraction of the workforce unionised would fall by a further 16% percentage points by 2030.

“According to our estimates, that could suppress wage growth by over a quarter percentage point each year.”

It could extend a 10-year period of lagging pay growth for British workers.

While job growth has been strong, pay growth has been historically weak, averaging at just 2% per year.

Mr Haldane said the pattern of weak pay can be explained in part by the large job losses following the financial crisis, which created a “significant” pool of unemployed workers and subsequent job insecurity.

Weak productivity also played a role, but structural factors in the labour market are also to blame.

“The world of work is being reshaped in many advanced economies by the secular fall in the degree of unionisation and collective bargaining, by changes in employment contracts and working patterns and by rises in the degree of concentration and automation in the company sector,” he said.

“By reducing workers’ ‘pay power’, they too have depressed wage growth, actually and prospectively.”

While the so-called gig economy has been welcomed by some workers looking for job flexibility, Mr Haldane highlighted its “dark side” involving “increased income uncertainty and job insecurity”.

Estimates suggest more than one in 10 people on part time contracts would prefer full-time work, while close to half of zero-hours contract workers would prefer to have fixed hours.

He said: “At the same time as the quantity of work has risen, for a growing number of workers its quality may have fallen.

“This pool of poorer-quality work appears to be fairly deep.”

He noted that many are struggling to find permanent or full time work and are suffering high levels of anxiety as a result.

A rise in automation could also impact wage growth.

“The easier and cheaper it is to replace human with machine, the lower is likely to be the wage bargaining power of workers relative to companies.

“Increased automation and the dawn of a Fourth Industrial Revolution could, then, result in slower pay growth and workers receiving a smaller slice of the income pie,” Mr Haldane warned.

But amid record-high employment rates, further wage growth could be on the horizon.

Average weekly earnings growth, excluding bonuses, has reached 2.9%, while private sector pay growth recently hit what Mr Haldane called a “psychologically-important 3% barrier”.

The public sector pay cap has also been lifted.

Mr Haldane said: “I think there is more compelling evidence of a new dawn breaking for pay growth, albeit with the light filtering through only slowly.”

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