LSE Researchers Advocate Limiting Employer Influence for Better Living Standards

Reversing the trend of more employer power and less worker power in bargaining over wages and working conditions is key to improving living standards, an election briefing from LSE shows.

After 15 years of stagnation, living standards have stalled in the UK – and the chances of children doing better than their parents have fallen.

In the latest election analysis from the LSE’s Centre for Economic Performance (CEP), “Real wages, inequality and living standards“, Professor Stephen Machin highlights two reasons for real wage stagnation: low productivity and a shift in balance of power from workers to employers.

Productivity took a hit in the global financial crisis and has not recovered since then. Increased productivity is the key driver of higher wages and living standards. But for any gains to be felt, they must be shared between bosses and employees.

“In most aspects of the working relationship – hours, contract types, non-wage benefits – power has tilted away from workers and in favour of employers,” said Professor Machin.

The briefing also describes:

• In real terms, wages stagnated and productivity flatlined through the 2010s and into 2020s.
• If wages had continued growing on the same trajectory that they were following before the global financial crisis, UK workers would now be earning an additional £10,700 a year, on average.
• The level of wage inequality in the UK is one of the highest in Europe. Middle-income and poorer households have been worst hit by UK real wage stagnation.
• The proportion of 30-year-olds with net incomes higher than their parents (at the same age) fell from 76% in 2005 to 65% in 2017, as younger people have only experienced stagnant real wages in their time in the labour market.

Professor Machin said: “The shift in power towards employers and away from workers has both gone too far, and has been bad for the economy and those working in it (that includes employers). While other countries have seen similar trends towards lower wage growth, in places where there has been less change in the balance of bargaining power, there have been fewer problems of stagnation and inequality.”