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Austerity backlash imminent?

Peter Urwin

Professor Peter Urwin, Professor of Applied Economics and Director of the Centre for Employment Research at Westminster Business School, comments on how the current political environment is shaping the UK labour market outlook and sentiment towards a national wage increase:

“A backlash against austerity has been coming for a while and the current cabinet row over public-sector pay is only exacerbating the issue. In the present political environment, we may consider that a continued rise in the National Living Wage (NLW) would be supported, as voters seem in a ‘fiscally generous’ mood.

“However, with a Brexit-induced downturn in economic activity increasingly likely and real wage growth looking to be stagnant there is increasing concern for jobs in certain sectors. By 2020 the Low Pay Commission suggests that the NLW may be at a level that is 90% of the median for workers in retail, and at the median for those in cleaning and hospitality; nearly one fifth of all private sector jobs could be paid at this minimum level.

“The NLW aims to achieve a relative living standard for the low paid, with no explicit consideration of the likely impact on jobs – in contrast, decisions over the NMW aim to help the low employment prospects’. However, if we really want to help those in low paid employment, there needs to be increased spending on opportunities to re-train, raising productivity to a level that justifies hourly rates suggested by the NLW. Where this does not happen, we can expect more benefits to be paid out following low skill job losses. As in many areas of current policy debate, a desire to help the disadvantaged in society, probably implies less take-home pay for workers on median incomes (as taxes increase).

“For the majority of households, it is quite possible that an end to austerity and more public-sector largess would actually make them worse off. This is a difficult conversation that nobody seems to be having. However, as momentum around an end to austerity increases and Brexit-driven concerns become rife in the UK economy and labour market, this is fast becoming a topic the government cannot shy away from.”

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