2014, Labour’s year of…Industrial policy

A telephone conversation with a constituent over the summer offered a clear insight into what has gone wrong with the labour market since the Great Recession hit in 2008/9. It demonstrated to me the scale of the policy challenge the next Labour government will have in rebalancing an economy where low pay, low skills, and low investment are in danger of becoming entrenched obstacles to fairness and progression at work.

Laid off from a skilled construction job during the recession, he struggles now in a low paid job in the retail sector, on a zero hours contract, with the high costs of childcare sapping his already diminished standard of living. For him, like the record one in ten workers in the UK who are under-employed, the biggest barrier to prosperity is the quality of work being created in an economy where the IMF finds real wages and productivity are still weak, and levels of in-work poverty are soaring.

Government and the private sector are failing to invest in research and development at the pace our main competitors are doing. We have a yawning pay gap between workers with low levels of skills or no qualifications and those with at least a college diploma or Level 4 NVQs – a difference in average pay rates of £8.84 an hour in 2012, which represents a widening of the gap by nearly 10 per cent in the space of just six years.

With a debate raging over whether automation, globalisation or the economic cycle are at fault in returning the shape of the jobs market to that of an hourglass with the hollowing out of many medium skill middle income jobs, it is clear that Labour will need a strong industrial policy to overcome these serious imbalances and inequalities in the labour market.

Action on several fronts will be required. First, raising the wage share in the economy through fiscal incentives for employers to pay the living wage to workers, backed up by increases in the national minimum wage in those sectors of the economy which can support this. This is a contested area – Landman Economics claim that raising the statutory minimum wage rate to that of the living wage would not involve appreciable job losses and could boost the public finances by over £3bn net a year. The IPPR, however, using the NIESR model, found that one possible outcome of raising everyone on the minimum wage to the living wage could be 160,000 fewer jobs.

The Resolution Foundation’s Commission on Living Standards uncovered the long-term problem with the declining wage share – in 2008 just 12p in every pound of growth generated in the economy found its way into the pay packets of workers in the lower half of the income scale: a dramatic slump from the 1970s, and a breach in the link between rising productivity and living standards for ordinary workers. One solution involves rethinking the remit of the Low Pay Commission to determine whether an across the board rise, or a combination of that with sectoral increases where that will not impede job creation, are the best means to offer low paid workers hope of an uplift in wages.

Second, a revolution in workplace skills. A recent OECD audit found strong links between skills use in the workplace and opportunities for wage progression in jobs, although skills miss-matching is a serious problem in small businesses. The relationship between increasing proficiency in numeracy, literacy and problem-solving abilities in workplaces using technology and higher wage levels is particularly marked. This backs up findings in this country by the Joseph Rowntree Foundation which demonstrated that households with individuals possessing no skills or being out of work were at the highest risk of long-term poverty, although with two-thirds of poor children living in households where at least one adult works, it is no longer true that work is an automatic route of poverty for many. In Government, Labour started reforming workplace and adult learning, but problems with individual learning accounts stalled much-needed reforms. Working with employers, trades unions, schools and colleges, the next Labour government should take up this issue again as a key priority.

Third, childcare. The IFS found that the biggest factor in the increase in family living standards in the forty years from 1969 was more second earners in couple households with children going into work. If we want to increase the employment rate among women, cut inequality, and provide a long-term boost to living standards, a more comprehensive and affordable childcare system like that proposed by Labour is critical.

Boosting living standards for the long-term involves several inter-locking areas of policy – improving employment rates, investing in the right areas of the economy in science, research, innovation and workplace skills, and cutting the bill for taxpayers and for society of Britain’s shameful levels of poverty pay. A one nation Labour industrial policy can make a start to the essential task for the left of restoring the link between productivity and rising living standards once again.

William Ban is Labour MP for Glasgow North East and a member of the Business, Innovation and Skills Select Committee.