Policy Exchange released a report today in which they take aim at public sector pay and employment relations. In the context of the Coalition’s fiscal austerity measures, the report calls for an overall freeze in public sector pay until 2014/15 (to bring wage costs back down to 2003/04 levels), the introduction of a graduated pension levy, and the replacement of national with local bargaining. (Curiously, it also suggests that the scrapping of the Two Tier Code would help to reduce wage costs, despite the fact that the government abolished it last December.)
There is an undercurrent in the report that private sector employment relations practices should be a model for the public sector. It is unsurprising that Policy Exchange would attempt to manufacture a Wisconsin-style divide between public and private sector workers in this manner, given its general antipathy towards unions and collective employment relations.
In any case, Policy Exchange’s proposals are seriously muddle-headed. The report points to the growing disparity between public and private sector pay as justification for its recommendations, including the claim that “several predominantly private sector occupations have seen no real terms increase in their income since 1997”.
This is not an outcome to aspire to. As the NIESR noted last week, declining wages equals declining consumer spending equals lower tax revenues. How this makes for good economic policy is anyone’s guess.
The British economy is unlikely to recover until we see growth in the wages of private sector workers. An extension of collective bargaining could assist in this process, particularly since the continued decline in private sector union density and collective agreement coverage most likely contributed to the sharp fall in real wages over the past few years.
IMF chief Dominique Strauss-Kahn said last month that “collective bargaining rights are important, especially in an environment of stagnating real wages… Stability depends on a strong middle class that can propel demand”.
Policy Exchange’s prescriptions would almost certainly see further wage decline across the British workforce. Policymakers should instead be looking to public sector employment relations as a model for delivering wage-driven growth.