Mounting workplace power imbalance harms the economy

Last Thursday (23 May) I had the pleasure of participating in a South West Employment Relations Forum meeting in Bristol, jointly hosted by Acas and the University of the West of England. My contribution was to reflect on the so-called ‘new normal’ for the UK economy and what this might mean for employment relations. But the value of the evening was provided by the assembled managers, trade unionists and academics with first-hand experience of what’s happening in workplaces up and down the land.

The ‘new normal’ has been highlighted by some leading UK economists, notably Andrew Sentance, former member of the Bank of England’s interest rate setting Monetary Policy Committee. However, while it’s easy to agree that the current period of prolonged slow economic growth is in marked contrast to what outgoing Governor of the Bank Sir Mervyn King once described as the ‘nice’ decade from the mid-1990s (i.e. non-inflationary, continued expansion), the underlying nature of our current malaise remains a matter of debate.

If stagnation, high unemployment and falling real wages is purely symptomatic of weak demand, today’s new normal will eventually give way to better times akin to the pre-financial crisis state of affairs. We might have to tough things out, perhaps even suffering a ‘lost decade’ of austerity, but prosperity will be restored. But what if the economy has changed for good – might hard times be with us for the foreseeable future? If so, the ‘new normal’ becomes shorthand for an economic wake-up call, announcing an extended period of at best only limited improvement in living standards and highlighting the need for fairly radical structural reform in order that the good times roll once again.

From the workplace perspective this new normal debate plays out in a contrast between those who reckon the current squeeze on average real earnings reflects the efforts of workers to price themselves into jobs in a weak economy or is instead symptomatic of the emergence of a permanently lower wage/lower productivity economy. For the time being the jury is out on this question, though it is possible to draw a link between structural developments in the labour market and workplaces which in their interaction lead to an unpalatable outcome.

The typical British workplace is now devoid of collective strength. According to the most recent Workplace Employment Relations Survey only 35% of workplaces now have any structure for employment relations – down from 45% a decade ago, driven in particular by growth in smaller private sector workplaces. At the same time, the pool of labour available to employers is growing. The proportion of people long-term unemployed is much lower than in previous recessions, the number of economically inactive people is falling, and work related immigration remains at a historically elevated level.

The underlying power of employed ‘insiders’ to preserve their real standard of pay, let alone push for more, is arguably back to where it was in the early years of the 20^th century. Admittedly, individual workers with particular skills or talent may be able to earn more, while those at the bottom of the pay scale are protected by the national minimum wage. But the average Jack or Jill – the squeezed middle at work - is increasingly impotent when it comes for asking for a pay rise and ever more fearful of what might happen if they do.

Although heightened job insecurity understandably grabbed the headlines last week when the initial findings of the large scale 2012 Skills and Employment Survey were published, what was most shocking was evidence of a longer term increase in the percentage of employees anxious about arbitrary dismissal or victimisation by management. Moreover, there has been a decline in perceived employee influence over wider organisational decision making. In other words, whether one looks at pay or what happens at work, bosses increasingly have the upper hand.

Despite being bad news for workers, this power imbalance might be considered acceptable if it had some clear benefit for the economy. But fear is not a recipe for employee engagement while a slump in real pay is a disincentive to capital investment, which ultimately determines growth in productivity and the potential for higher pay.

In light of this some participants at the South West Employment Relations Forum meeting argued that stronger trade unions offered the best way of restoring power to workers. I’m not so sure, though largely because it’s difficult to see where the political momentum for this would come from. But I am convinced of the need for a much higher profile public debate on this matter. Current discourse is imbued with the false perception that workers have too many employment rights and that this is harmful to productivity, jobs and economic growth. The reality is the complete opposite, an understanding of which ought to be central to discussion of the kind of ‘new normal’ our economy needs.