Posts Tagged ‘inequality’

Can mandatory gender pay gap reporting deliver true opportunity for women?

From April 2018, the UK will be one of the first countries in the world to implement mandatory gender pay gap reporting for companies with 250 or more employees. Louise Dalingwater assesses the policy, which was first announced by the Coalition in 2010, and highlights the reasons why it may not address gender inequalities effectively. 

In 2014, a highly critical report commissioned by the European Commission claimed that gender policy was a contested political principle in the UK, with a limited focus in political discourse on gender equality. The question of equality in official speeches appeared to be somewhat lost in the discourse on fairness, eligibility, entitlement and merit.

Have things changed? In an attempt to seize centre ground in 2015, former Prime Minister David Cameron claimed that the Conservatives had always been the party of equal opportunity and that decisive action would be taken to tackle gender inequalities head-on:

[A Tory conference guest commented:] “What on earth are the Tories doing speaking about equality? It’s not their issue.” To this, I say “nonsense”. We’re not just the party of the first Jewish prime minister and the first female prime minister; (…) today [we] will start forcing companies to publish the gap between men and women’s pay.

The Cameron government then announced concrete plans for mandatory pay reporting. But what will this mean in practice? From April 2018, the UK will become one of the first countries in the world to require voluntary, private and public sector employers with 250 or more employees to publish gender pay gap reporting. There would, however, appear to be some essential weaknesses in this framework.

First, disclosure does not directly address the problem of horizontal and vertical segregation: women unable to progress in their career and being over-represented in low paid, low prospect jobs. Progress in increasing female representation on boards in the top 350 companies, following the recommendations of the 2010 Davies report, has been slow. The overall representation of women in FTSE 100 Combined Executive Committee and Direct Reports was only fractionally higher in 2017 (0.1 percentage points) compared to the previous year.

Second, Mandatory Pay reporting may also lead companies to regrade or re-title jobs that are occupied by men to justify pay gaps. This is indeed what happened after the introduction of the Equal Pay Act of 1970.

Third, such reporting does not address the part-time pay gap because companies are not obliged to submit information on part-timers. And yet, the United Kingdom has the third highest incidence of female part-time workers in the OECD. Despite laws to increase part-time workers’ rights, there are many drawbacks to working part-time, including lower hourly earnings, fewer training and promotion opportunities, less job security, less access to unemployment insurance and reduced pension entitlements. This high incidence of part-time work among women has been found to result in a significant pay and opportunities gap in the United Kingdom.

Credits: Larry Johnson (CC BY 2.0)

The main problem with part-time work is that it is overwhelmingly concentrated in low-paid sectors, which tends to fuel labour market segmentation. The highest paying and highest ranking managerial, professional and associate professional occupations are predominately available full-time only. The low-rated and low-paid occupations in service, sales and elementary positions are occupied by more women than men and by more part-timers.

After analysing the incidence of part-time work across countries, the OECD concluded that women are more likely to work part-time in countries with high childcare costs. While local authority childcare places have decreased, along with cuts to local budgets from 2010 onwards, there has been a massive increase in the number of private nurseries and childminders. The cost of care dissuades women from taking up work because it amounts to 33% on average of household income compared to 13% on average in OECD countries.

Companies that already practice gender pay disclosure are very upbeat about the extent to which it can help tackle discrimination, by not only looking at gaps within similar positions, but also issues relating to vertical segregation, as described by PricewaterhouseCoopers:

At PwC, publishing our gender pay gap has allowed us to understand the reasons for the gap and hold ourselves accountable to make changes. For example, we know that a sizeable part of our pay gap is a result of having fewer women in senior positions, so this is an area where we continue to focus our efforts. We’re also challenging our recruitment processes, making more senior jobs available on a flexible or part-time basis, and have introduced a return to work programme.

Such decisive action from the central government is certainly laudable, even if it was, in fact, acting Labour leader Harriet Harman who included powers for government to impose gender pay gap reporting within the Equalities Act of 2010. Some might argue that it is a sign that gender inequalities are being tackled head-on.

However, there is a need to redress gender imbalances at all levels. Policies and practices at the firm level and within the household as well as government policy must be part of the equation. At the governmental level, macroeconomic policies need to be more gender sensitive and welfare policies need to be implemented that do not discriminate against women. Also, measures are needed to tackle the structural and institutional causes of gender disparities. Mandatory quotas for women on boards rather than the current voluntary based quotas could help reduce inequalities.

More gender friendly working arrangements are also needed. The LSE’s Commission on Gender, Inequality and Power recommended a national care service to ensure that affordable, accessible and appropriate care is available: “Care provision is vital to individual and social well-being and resolving the care question is fundamental to redressing and ultimately resolving gender inequality”. With the fifth largest gender gap in Europe and the biggest increase in the pay gap this year, decisive action needs to be taken at all levels.

_______

Note: the above draws on the author’s book chapter “Gender Inequalities in Britain: Bridging the Gap in Pay and Prospects”.

About the Author

Louise Dalingwater is Associate Professor of British Politics and Economic Policy at Sorbonne Nouvelle University, Paris.

 

 

 

All articles posted on this blog give the views of the author(s), and not the position of LSE British Politics and Policy, nor of the London School of Economics and Political Science.

Labour market institutions still matter for workforce equality in the knowledge economy

Many observers have assumed that the transition to the knowledge economy has weakened the ability of labour market institutions to combat inequality. David Hope and Angelo Martelli illustrate that labour market institutions still retain the capacity to shelter workers from structural changes in the economy, including the continued shift of workers into high-value added service sectors.

The last forty years have seen a pervasive rise in income inequality across the advanced democracies of Western Europe, North America and the Asia-Pacific region. This has occurred alongside major structural change, which has seen these economies transition from Fordism – an economic system built around the mass production and consumption of standardised consumer goods, supported by collective bargaining, a generous welfare state, and Keynesian demand management policies – to the knowledge economy – where service sectors, such as finance, insurance, business services and telecommunications, dominate economic activity, and where human capital is central to economic prosperity. As shown in Figure 1, the expansion of knowledge-intensive services has been ubiquitous in the advanced democracies since 1970.

Figure 1: The expansion of employment in knowledge-intensive services in advanced democracies between 1970 and 2006

Note: Knowledge-intensive services comprise three sectors: post and telecommunications; financial intermediation; and renting of machinery and equipment and other business activities. Source: EU KLEMS Growth and Productivity Accounts: November 2009 Release, updated March 2011; O’Mahony and Timmer (2009)

The two phenomena are intimately linked. The transition to the knowledge economy has created clear winners and losers. The information and communication technology (ICT) revolution that underpinned the rise of the knowledge economy meant that complementarities in the Fordist production regime between skilled and semi-skilled workers were replaced by complementarities between skilled workers and ICT. This led to a rise in the wage premia for college-educated workers, while those workers that lost out were typically in the middle of the skill distribution with jobs that could be easily replicated by computers or machines.

The ICT revolution and globalisation have also allowed highly-talented managers, CEOs and entrepreneurs to apply their talent to a much wider pool of resources and reach a substantially larger audience than was previously possible, enhancing their ability to reap the rewards of their talents. An aspect of the knowledge economy that serves to reinforce this dynamic is the existence of large network effects, whereby the value of a product rises with its number of users (e.g. social media platforms), often leading to the creation of winner-take-all or winner-take-most markets.

However, while the transition to the knowledge economy has put upward pressure on inequality in all the advanced democracies, there are striking differences in the inequality trajectories of different economies. Using two widely-used measures of income inequality – the income share of the top 1% and the 90-10 wage ratio – it is clear that inequality has grown more rapidly in the English-speaking countries than in the continental and northern European economies. For example, the income share of the top 1% in 2006 was 14.8% in the UK and 20.1% in the US, compared to 11.2% in France, and just 6.8% in the Netherlands.

As we might expect, the UK and US saw large employment expansions in knowledge-intensive services between 1970 and 2006. However, many countries where inequality growth was much more subdued, such as France, Belgium and the Netherlands, also saw dramatic expansions in knowledge-intensive services (see Figure 1).

This leaves a clear puzzle: given the common pressures from the transition to the knowledge economy, why has income inequality not risen to the same extent across the advanced democracies? We address this gap in the literature by investigating whether the effect of the knowledge economy on inequality varies across countries with different labour market institutions. While there is a large body of empirical work that finds that labour market institutions help restrain dispersion in the distribution of income, no cross-national study has investigated whether labour market institutions can mitigate the effects of the transition to the knowledge economy on income inequality.

Although requiring further development, there is a theoretical literature that provides the motivation for focusing on this interaction. Technology adoption and the upgrading of the employment structure can be encouraged by labour market institutions that set a high wage floor. The improvements in productivity that come with these investments in low-skilled workers can boost their productivity and therefore lower overall wage dispersion. In addition, previous research* has shown that employment protection legislation insulates workers from the routinisation associated with technological change and consequently constrains the wage effects associated with job polarisation. Turning to the top end of the income distribution, as the more coordinated continental and northern European countries did not have labour market institutions or corporate governance systems conducive to firm strategies centred on short-term profits, Anthony Roberts and Roy Kwon argue that they were better able to rein in the incomes of the most affluent households during the transition to the knowledge economy.

We conduct our analysis by carrying out a panel data econometric analysis of 18 OECD countries from 1970 to 2007. The countries (as shown in Figure 1) vary markedly in their industrial relations systems, and more broadly in the organisation of their political economies. We look at four measures of labour market institutions – the coordination of wage-setting, the adjusted bargaining coverage rate, trade union density, and employment protection legislation for workers on permanent contracts; and two measures of income inequality – the 90-10 wage ratio and the income share of the top 1%. We employ Prais–Winsten regressions as our empirical strategy, as this approach helps address estimation problems that commonly arise with time series cross-sectional data.

Controlling for other variables that have been found to be drivers of income inequality – education, partisanship, financialisation, globalisation, and the state of the economy – we find that the presence of strong labour market institutions, in the form of coordinated wage setting, employment protection legislation, and high wage bargaining coverage, reduces the effect of the expansion of employment in knowledge-intensive services on income inequality. Trade union density, on the other hand, does not significantly affect the relationship between knowledge employment and income inequality.

Figures 2 and 3 show the estimated effects of a 1 percentage point increase in employment in knowledge intensive services as a percentage of total employment on the income share of the top 1% and the 90-10 wage ratio when our statistically significant labour market institutions are at the maximum and minimum values observed in the sample. We can see that for the income share of the top 1% (Figure 2), an increase in knowledge employment is associated with an increase in inequality when labour market institutions are very weak and a reduction in inequality when labour market institutions are very strong. Similar patterns emerge for the 90-10 wage ratio (Figure 3), but in this case, even the maximum values of wage coordination and bargaining coverage are not sufficient to reverse the positive association between the expansion of knowledge employment and wage inequality.

Figure 2: Estimated effect on the income share of the top 1% of a one percentage point increase in the share of knowledge employment

Source: Authors’ calculations

Figure 3: Estimated effect on the 90–10 wage ratio of a one percentage point increase in the share of knowledge employment

Source: Authors’ calculations

While our analysis is able to pin down the importance of labour market institutions for mitigating the inequality effects of the transition to the knowledge economy, a fruitful avenue for future research would be to examine the underlying mechanisms at work. For instance, micro-level empirical analyses or qualitative case studies could examine how labour market institutions have interacted with the expansion of knowledge employment to ensure greater wage solidarity in Scandinavia and some parts of continental Europe than elsewhere. The extent to which producer groups, such as unions and employers’ associations, have adapted their strategies in the knowledge economy would also be an interesting area for further investigation.

Our findings make an important contribution to emerging comparative political economy literature on the knowledge economy by challenging the dominant narrative that the complementarities between skilled and semi-skilled workers that underpinned the Fordist era have been so undermined by the ICT revolution that national industrial relations systems are no longer the main guarantors of wage solidarity across the labour force. The results of our empirical analysis show that labour market institutions retain the capacity to shelter workers from structural changes in the economy; in this case by alleviating the pressure on income inequality arising from the continued shift of workers into high-value added, ICT-intensive, service sectors.

*This refers to research by Angelo Martelli which is not yet available online.

Note: This article originally appeared at our sister site, LSE EUROPP. The post draws from the authors’ recent study for LSE Inequalities.

 _________________________________

About the authors

David Hope – King’s College London
David Hope is a Lecturer in Political Economy in the Department of Political Economy at King’s College London.

 

Angelo Martelli – LSE
Angelo Martelli is a Postdoctoral Research Fellow in the European Institute at the London School of Economics.

Keeping freedom of movement is the top Brexit priority for young people

shakuntala banjisam mejiasWhat are young people’s priorities in the Brexit negotiations? In focus groups held around the country, Shakuntala Banaji and Sam Mejias (LSE) found a majority want to keep the right to freedom of movement and maintain trade links with Europe. They also complained about the lack of political education in British schools, which they felt left adults ill-prepared to vote.

Young people in our focus groups were asked the question ‘What are the most important issues to you that you want UK policymakers to focus on during the Brexit negotiations with the EU?’ The table below highlights the main priorities articulated in order of frequency.

Table 1: Priorities expressed by young people for Brexit negotiations

Priority
Freedom of movement
EU membership benefits
Provide mechanisms for young people's voices to be heard
Improve education
Economic growth
EU and/or global relationships
No Brexit
Involve youth in negotiations
Single market access
Northern Ireland
EU and/or global trade
EU-UK rights to remain
Guarantee human rights in the UK
Strong and clear negotiation
Improve NHS
Promote an inclusive and multicultural society
Devolve power to regions
Engage young people
Make immigration fairer
Oppose inequality
Youth policy

When asked what their most important priorities for the Brexit negotiations were, almost half of all individual focus group participants in over half of the 40 focus groups stated their preference for keeping essential aspects of their EU membership intact. This included either keeping freedom of movement, EU membership benefits, residency rights for EU citizens living in the UK and UK citizens living in the EU, and in several cases outright calling for Brexit to be reversed. As with their concerns about the impact of Brexit, freedom of movement was mentioned frequently, and often in the context of the impact that its absence would have on economic realities and on jobs; however, some young people were convinced that capital would continue to move flexibly after Brexit and hoped that the same would be true of human beings:

[It’s] frustrating that we prioritise the freedom of movement of capital over the freedom of movement of people. Participant aged 15-17, Swansea

Yeah, I [prioritise] free movement of people … at least free movement of workers, so that we can still have people coming in to fill nursing jobs, and we can go there to find jobs. If you look at what the EU was founded on, the principle that labour should be allowed to move freely, the idea that if we still have this immigration, if we still have people coming in, if you look at the statistics of nurses, at the moment, the amount of people coming from the EU to apply for nursing positions has dropped. And the NHS is already in horrific crisis, and we’re having these EU citizens who are good at what they do, they specialise in what they do, flooding out of the country. I think the single market is really important but also there are other aspects of the economy which are kind of influenced by the talent we have coming in from the continent. Male, 22, Cardiff 

EU membership benefits, particularly studying in Europe and taking advantage of European education programmes and reduced tuition fees for EU members, were also mentioned many times as priorities:

I’d be quite upset if it was lost because my mum went on the Erasmus plus programme [in the 1980’s]. Probably Erasmus maintained, that’s the first [priority]. Male, 19, London

The one thing I’d ask for is the flexibility to go to university in Europe. Education is the most important thing to us. Participant aged 15-17, Swansea

Keeping EU-UK residency rights for citizens currently living outside their country was also frequently discussed, as was the maintenance of EU funding schemes:

Status for EU nationals… and also sources of EU funding like EU structural funds for deprived communities and persons, that’s something they’ve not confirmed when we leave where all this money is going to come from or if these groups and projects are just going to suddenly have no funding left and not be able to continue operating. Female, 23, Edinburgh

After EU membership benefits, young people in our focus groups were most likely to prioritise their own involvement and agency during the Brexit negotiations. Specifically, many young people asked for the establishment of mechanisms for their voices to be heard, or to be involved in the negotiations somehow. Some young people also expressed a desire for the government to engage them more generally, or to create specific youth policies to support their voices and preferences.

Leading up to the negotiations they need to create a shadow youth negotiation panel. So they’ll have a team of negotiators that will go to Europe, right? I think there needs to be a shadow of that but made up of young people, a panel from all across the UK, from all across socioeconomic backgrounds and ages and up to about 24 maybe 25 … but they work in tangent with them. And so, whatever they come up, they will be scrutinised. It’s almost like a scrutiny panel, but made up of young people. That’s what I would suggest. Male, 18-26, London

In the focus group sessions, young people spoke of the importance of economic growth to their own life chance and to overall prosperity in the UK. Some young people specifically asked that single market access be maintained, while others spoke of the importance of keeping EU and global relationships stable via strong trade deals. Again, these priorities were often framed both in terms of the disproportionate impact that economic stagnation could have on young people, and also on building a fairer and more equitable future for people in the UK:

The most important thing is to have economic certainty. That whatever the negotiations happen they won’t cause either a meltdown in the UK economy or the global economy. Because for young people, we’re going to bear these consequences for the rest of our lives. Male, 18-26, London

We’re a part of Europe, we’re a part of something else, there’s that coalition between us that we have this reciprocity in trade and work, and I want to see this at the heart of wherever the negotiations end up. I don’t want that to go, to change to ‘Little England’. People can just say I can go and work there. People from Ireland can trade with them in Europe and its not going to cost any extra. We make like 200 billion a year in exports. That’s so much money for us in the UK. That’s what I want to see protected, as well as everyone’s freedom of movement. Female, 19-22, Huddersfield

Findings from the YouGov survey showed overwhelming support for improving political and media education in schools. 67% of YouGov survey respondents between the ages of 18-24 felt that it was important to improve political and media education in schools. However, agreement about the importance of improving political and media education in schools diminished across generations, with 51% of 25-49 year olds, 49% of 50-64 year olds, and 47% of respondents aged 65 and above finding it important.

In many of the focus groups, young people lamented the lack of information available to them about the EU during the referendum campaign, and they also expressed scepticism about the information they were provided by politicians and the media – the disputed claim that £350m a week would be redirected to the NHS if citizens voted for Brexit being the most often cited example. They also overwhelmingly spoke of the absence of sufficient and critical political education in schools, and education about the EU. Many felt that improving education about both politics and the EU was essential to equipping young people with the tools to participate in politics.

Well one of the bigger things is, you need a political education. I think specifically, if this is gonna happen, we need a specific education around the EU…[and] politics in general but it’s pivotal because the young people don’t know how it affects them. Female, 24, Nottingham

With regard to political education, the male dominated nature of the political sphere and school classrooms dealing with politics was also referenced as a cause for concern:

Gender [is another possible barrier to learning about politics]. Because when I was doing A-levels, whilst we were a female majority class, the two males that there were in the group made it clear that politics was not a place for women apparently … And it was only because we all basically said to them you have no right to tell us this and you are outnumbered here. So, we respect your viewpoint, but we are not leaving because you tell us to.  Female, 15-21, England

In over a quarter of all focus groups, youth participants spoke passionately about the importance of the UK remaining an open and inclusive member of the global community of nations and building strong EU and global relationships. They also discussed the importance of arriving at a peaceful and feasible solution to the issue of Northern Ireland’s border with the Republic of Ireland. Finally, they insisted that post-Brexit, the UK enact policies that are inclusive and multicultural, and that prioritised a socially just approach to migration and cultural exchange.

The stuff that existed for young people should stay there because, like young people nowadays, my generation obviously had the benefits of the EU. The next generation is just not gonna have any benefits of the EU, it’s just gonna, say if Erasmus goes, they’re gonna have to just study in the UK and that’s it. Male, 20, London

On the one hand, the idea that ignorance of other cultures causes greater intolerance was repeated by many of our participants. The idea that travel and encounter discourage closed and racist views, was also nuanced by those who argued that more needs to be done to make travel economically viable for economically insecure young people. On the other hand, amongst the participants who stated that they supported leaving the EU, some stated their desire for maintaining good relationships with their global neighbours, although this was first framed in terms of needing independence from Europe in order to do so:

I hope with Brexit we don’t become an insular nation. Well the whole point was that we get independent from Europe and we can spread out to across the world. I would like to see us become more global post-Brexit, rather than less global. Male, 17, East Renfrewshire

Others felt that globalisation required the UK to be a stronger member of the global community and that leaving the EU was a step in the wrong direction.

Finally, some respondents saw the UK’s role as needing to be one where tolerance and openness to multiculturalism needed to be prioritised post-Brexit. This was accompanied by comments in which young people specifically demanded that the UK government guarantee human rights in the UK that reflected current rights protections afforded by EU membership. And the issue of social justice and fairness continued to appear throughout the focus group sessions, in terms of prioritising improvement of the NHS, a fair immigration policy, and the opposing of inequality in the UK. Some young people felt that fairness in the UK should be extended to all who have legal status in the UK, regardless of citizenship status.

This post represents the views of the authors and not those of the Brexit blog, nor the LSE. It is an edited extract from UK Youth Priorities and Perspectives for Brexit Negotiations.

Dr Shakuntala Banaji is Associate Professor in the Department of Media and Communications at LSE, with a research specialism in young people, media and civic participation

Dr Sam Mejias is a postdoctoral researcher in the Department of Media and Communications at LSE, specialising in the fields of human rights and citizenship education, international educational development, youth media, and media for development.

An up-to-date account of economic inequalities in Britain since 2008

Nicholas Sowels provides an up-to-date account of inequalities in the UK since the financial crisis and explains how the current trends compare internationally, as well as among different social and age groups.

Income growth in the UK has been weak since the financial crisis. It is a trend which seems likely to continue through to the early 2020s. But in overall terms, this has not been accompanied by a worsening of income inequalities. Official data from the DWP indicate a broad stability in the inequality of disposable household income, equivalised (i.e. weighted) for household composition. In 2006/07, the Gini coefficient before housing costs was 35% and after housing costs it was 39%. In 2015/16, these rates were exactly the same.

Other data published by the ONS actually indicate a slight decrease in income inequality in recent years. According to this data series, the Gini coefficient has fallen from a peak of 36% in 1999-2000, to 35% in 2006-07, to 32% in 2015-16. This is the same level as in 1986, the 1980s being the decade which saw income inequality rise significantly before reaching a plateau in the 1990s.

Britain’s comparative position internationally

According to the standardised data of the OECD, despite a fall in its Gini coefficient from 37% in 2007 to 36% in 2014, the UK is Europe’s most unequal country in terms of disposable income (apart from Estonia). Figures for 2014 (or the latest available) for the other major European countries were: France (29%), Germany (29%), Italy (32.5%), Poland (30%), and Spain (35%). Britain is also the most unequal English-speaking country within the OECD, except the United States.

Contrasting experiences between income and age groups

The ONS figures attribute the marginal reduction of overall income inequality to a rise of incomes of the bottom quintile (the 20% of households with the lowest incomes), and a fall in incomes in the top quintile. The former experienced a rise of £1,600 between 2007/08 and 2015/16 (+13%), while the latter faced a fall of £1,900 (-3%). For all households, the median disposable real income in 2015/16 was £1,000 higher than in 2007/08. According to the Institute for Fiscal Studies, the improvement in low incomes has been due mainly to the performance of the labour market, which experienced strong job growth from late 2013 onwards.

Yet the overall figures mask differences between social groups, especially pensioners and young people. The IFS notes that the median income of the over-60s rose by 11% between 2007-08 and 2014-15. This resulted from an 8% rise in pensioner benefits. But it also stems from real growth in private pensions and increases in employment of older people. In stark contrast, workers aged 22 to 30 have suffered most since the financial crisis: in 2014-15, their real median income was still 7% below the pre-recession level.

Wealth inequality and the impact of housing

Most information about inequality concerns incomes, which are flows and easier to identify. Wealth inequalities by contrast are stocks, and harder to measure. Data are also difficult to come by, as wealth-holders are reticent about declaring their assets. Wealth inequality is, however, a burning issue, as it is far greater than income inequality. According to Rowena Crawford et al., the Gini coefficient of wealth in 2010-12 stood at 64% – nearly twice the income level. Using the latest wave of the Wealth and Assets Survey covering 2010-12, they go on to note that the poorest 1% of households had a net negative wealth of £12,000; the net median wealth was equal to £104,000; while the 95th percentile owned £0.7 million and the top 1% £1.4 million.

In the UK, the question of wealth is particularly important in terms of its impact on housing costs. These tend to aggravate income inequalities as poorer people pay a greater share of their income towards housing. According to DWP data, housing costs have increased the income Gini coefficient by an average 4% since the mid-1990s.

Trends in poverty

The latest figures indicate that median equivalised net disposable income before housing costs in the UK was £481 per week in 2015/16. Taking the 60% threshold of median income as a measure of poverty, the poverty income was thus £288. Respective weekly amounts after housing costs were £413 and £248.

Accordingly, there were 10.4 million people living in relative poverty before housing costs in 2015/16, equal to 16% of the population. After housing costs, these figures rise to 12.8 million. Notably, there has been a slight decline in the last two decades. In 1994/95, 19% of the population was living below the 60% threshold before housing costs; in 2006/07 the figure was 18%. The after housing costs numbers were 24% and 22%.

An alternative measure of poverty shows a greater absolute improvement. When taking the nominal value of the 60% income threshold in 2010/11 and adjusting it for inflation, the number of people living at or below this real level of income after housing costs fell from 41% of the population in 1994/95, to 22% in 2006/07, to 20% in 2015/16.

Future trends and Brexit

While it is still too early to measure the impact of Brexit on inequality and poverty statistics, both the IFS and the Resolution Foundation published studies suggesting that the diverging experiences of pensioners and young people are likely to persist in the medium term. The Resolution Foundation study indicates that higher inflation following the devaluation of the pound will squeeze real incomes, especially for poorer households, while the IFS estimates that earnings growth will favour higher incomes. At the same time, low-income private renters are likely to be hit especially through to the early 2020s.

________

Note: the above draws on the author’s chapter in Inequalities in the UK: New Discourses, Evolutions and Actions.

About the Author

Nicholas Sowels is Associate Professor at Pantheon-Sorbonne University.

 

 

 

All articles posted on this blog give the views of the author(s), and not the position of LSE British Politics and Policy, nor of the London School of Economics and Political Science. Featured image: Pixabay (public domain).

Without the right policies, automation risks the transfer of income from labour to capital

Although were not yet on the cusp of a ‘post-human’ society, the prospect of automation still poses significant economic and political challenges, including the potential shift of national income from labour to capital. Carys Roberts explains why public policy should seek to accelerate automation to reap the productivity benefits that come with it, while building new institutions to ensure the dividends are broadly shared.

‘Will a robot take our jobs?’ has been a common question in the media. The threat of mass joblessness has even given rise to debates on the merits and drawbacks of a post-work society. But while debates have focussed on work, less attention has been paid to the other side of the coin: profit.

This is an oversight, because automation could cause the transfer of large amounts of national income from labour (in wages) to capital (in profits), as income from tech-generated growth flows primarily to owners of capital. Such an increase in the capital income share could occur for a variety of reasons. Aggregate wages will be reduced if workers are substituted for technology without new jobs of equivalent worth in aggregate wages being created elsewhere in the economy. It could also occur if wages are pushed down due to surplus of labour reducing bargaining power following automation. The capital income share will also increase if new economic growth is less labour-intensive than before, as a result of new technologies. It is notable, for example, how many of the new ‘superstar’ tech firms have relatively few employees, generating (or expecting to generate) their profits largely from their technology, algorithms, and data.

A fall in the labour income share would not be in itself a problem, if capital were fairly shared across society. Yet that is not the case in the UK, where the wealthiest 10% of households own almost 70% of all financial wealth. A rising capital income share is therefore likely to increase inequality.

How much income could be transferred to capital? A new IPPR report finds that jobs with the technical potential to be automated are associated with £290bn of wages per annum. This represents 33% of all wages and earnings in the 2017 UK economy (see the report Appendix for our methodology). However, this does not mean that we should expect £290bn to be transferred to capital. Firstly, it is unlikely that all of these jobs will be automated in the short to medium term, though they may be in the long term. Technical potential for automation is a necessary but not sufficient factor for the automation of jobs; economic, regulatory, and ethical factors are also critical. Firms will only choose to automate tasks when the cost of doing so is less than the cost (financial and other) of employing workers to perform the same tasks. These are significant barriers to adoption. In fact, the UK lags behind other countries in terms of investment in technology and productivity increases, so at current rates, we are a long way from mass automation.

But even in the event that all of the jobs associated with these wages were automated, it is infeasible that all of this would be transferred to capital. The adoption of technology creates jobs in the development, installation, and maintenance of machines and software. Wages are likely to rise in occupations that are complemented by technology as productivity increases, which would offset some of the ‘lost’ wages. New employment will be created, either in the automating sector as demand responds to falling prices, and/or in other sectors as falling prices create an income effect. For example, Amazon has simultaneously expanded its workforce while hugely increasing its use of robotics, because demand for Amazon’s products has increased – the result of the lower prices it is able to charge due its use of technology and expanded output.

And yet complacency would also be the wrong approach. Many of the barriers that prevent the adoption of automating technologies today will eventually be overcome, as the acceptability of technology increases and costs fall relative to labour. This could result in significant automation, and across a broader range of skills, tasks and occupations than in previous waves of technological change, especially in the long-term. There will be frictions that mean people are not able to shift seamlessly into new jobs, as well as winners and losers by region, gender, and generation. Workers in occupations more technically susceptible to automation are less likely to have skilled qualifications or to live in areas where new jobs are being created – meaning they may not find new work. If wages continue to rise more slowly than GDP, new employment could be created in low-pay work in which employees or insecure workers are cheaper than machines, rather than at equivalent aggregate wages to those jobs lost. So empirically, while we would not expect all of £290 billion to be transferred to capital in profits, we should expect some portion of this to do so. The OECD has shown that over the last four decades, at least half of the decline in the labour share in advanced economies has been due to technological change.

We’re not yet on the cusp of a ‘post-human’ society, but the prospect of automation still poses significant economic and political challenges. Not least of these is the potential shift of national income from labour to capital. Policymakers must be ahead of the curve in anticipating these changes, and design policy to make sure automation works for everyone in society. Options on the table should include ensuring all sectors and areas invest in and benefit from technology that raises productivity, reforming the skills system to make sure good jobs that are created are accessible to all, strengthening trade unions to enable workers to bargain their wages upwards, and spreading capital ownership so that returns to capital benefit everyone in the economy.

_________

Note: the above draws on the recently-published IPPR paper ‘Managing automation: Employment, inequality and ethics in the digital age‘.

About the Author

Carys Roberts is a Research Fellow at IPPR. She tweets @carysroberts.

 

 

 

All articles posted on this blog give the views of the author(s), and not the position of LSE British Politics and Policy, nor of the London School of Economics and Political Science. Featured image credit: Pixabay/Public Domain.

Powered by WordPress | Designed by: index backlink | Thanks to insanity workout, car insurance and cyber security