Boosting the National Minimum Wage

It’s hardly surprising that the UK National Minimum Wage (NMW) has become a hot political topic again given the historically unprecedented fall in real wages which followed the 2008/09 recession; a decline that is still ongoing for many if not most workers.

Indeed, as concern grows over falling wage shares and rising inequality, minimum wages are the subject of lively debate in countries across the globe: Germany is on the cusp of introducing a minimum wage, Swiss voters have just rejected a relatively high minimum wage and some fascinating developments are taking place at state and metropolitan level across the US.

The degree of political support now associated with the UK NMW is quite remarkable; not only are the Labour Party and SNP bringing forward proposals to boost the value of the NMW, even George Osborne is talking up significant real terms increases. In such circumstances it’s easy to forget the ferocity of the opposition to its introduction back in 1999.

But what exactly do our political parties propose to do about the minimum wage? Earlier this week the Labour Party published “Low Pay: the Nation’s Challenge”, a report prepared by ex-KPMG honcho Alan Buckle. The report - the recommendations of which are strikingly similar to those in a recent Resolution Foundation report - proposes a number of measures to boost the minimum wage relative to median earnings: 

• Introducing a five-year target to increase the minimum wage to a more stretching (unspecified) proportion of median earnings. A degree of flexibility is retained in the framework: if due to changing economic circumstances the Low Pay Commission (LPC) believes the target cannot be met, they must write to the Secretary of State setting out their reasons. The burden of proof will fall on the LPC whereas in the current system it lies with the Secretary of State if he/she chooses to contest the LPC’s recommendation;
• Empowering the LPC to establish taskforces of key stakeholders in low pay sectors that are identified as having the potential to pay higher wages with the potential of setting a higher recommended or statutory rate for the sector;
• Changing the remit of the LPC to give it a stronger role with a longer-term focus – implicit in the above recommendations;
• Improving enforcement;
• Introducing a number of measures to ‘encourage’ employers to pay a Living Wage: procurement, tax incentives etc. 

 As for the SNP, the White Paper gives:

 “…a firm commitment that if we are the government in an independent Scotland, the minimum wage will in future rise at least in line with inflation.

“This Scottish Government's Fair Work Commission [which will replace the LPC in an independent Scotland], with members drawn from business, trade unions and wider society, will advise the government on the minimum wage. The Commission will also provide advice on other factors relating to individual and collective rights which contribute to fairness at work and business competitiveness, recognising that both are integral elements of sustainable economic growth in Scotland. The Commission will work with the larger Convention on Employment and Labour Relations. Together they will help the Scottish Government foster a constructive and collaborative approach to industrial relations policy and formalise the relationship between government, employers, trade unions and employee associations”.

It’s reasonable to expect the relative merits of these proposals to come under some scrutiny in the run up to the referendum. Is the best approach to index the NMW to inflation or median wage?

Maybe neither for since its introduction in 1999 the NMW has comfortably outstripped both wages (average and median) and inflation:

But the real value of the NMW has fallen since the recession (although it has maintained its strength relative to the median gross hourly wage - 54.6% in 2013 - because of the historic decline in median earnings) and it's important that politicians urgently consider ways in which it might be restored. For me it is the Resolution Foundation's approach which is most persuasive; a broader approach to the issue of low pay is essential and overdue.The Government should make an explicit long-term commitment to reducing the incidence of low pay and it should resource the LPC appropriately.

The Buckle Report recognises that the LPC is effective and credible as the Scottish Government tacitly acknowledges in proposing a Scottish version – the Fair Work Commission. Yet the proposals of both would constrain its flexibility.

This is particularly interesting in the case of the Scottish Government since the whole approach to industrial relations and labour market policy set out in the White Paper is based around the concept of social partnership. The LPC is one of the UK’s very few social partnership institutions. If the Scottish Government is genuinely committed to the concept then why not let the social partners get on and do their job?

Of course regulatory responses to a NMW declining in real terms and a falling wage share in general have their limits. Sweden, Denmark, Norway and Finland don’t have a national minimum wage. But they all have very high rates of trade union density: 

...and collective bargaining coverage (2007):

...and higher wages and total labour costs:

(Source: Eurostat, hourly labour costs (wages and salaries and non-wage costs such as employers’ social contributions) in EU 28, March 2014)

...and lower incidence of low wage work:

It’s no accident that the UK national minimum wage (NMW) was introduced in 1999 following a steep and sustained decline in union membership:

Replicating Nordic rates of TU density and collective bargaining coverage is a long-term and difficult project under any constitutional scenario. Nevertheless, it would be nice if politicians concerned about low pay could strongly and explicitly acknowledge that ‘collective bargaining is a more efficient way of protecting workers than the law’. A genuine commitment to boosting wages at the bottom end of the income distribution needs to be accompanied by a willingness to confront the asymmetries of economic power which run through Scotland's economy. Examining the role Government might reasonably play in boosting union membership and collective bargaining coverage looks like a good place to start.

Stephen Boyd - STUC  

Celebrating Modern Apprenticeship Week with Scottish Union Learning

Jessica Thomson is a UCATT member and a Stone Masonry Modern Apprentice at Historic Scotland in Stirling

During STUC Annual Congress this past April, First Minister Alex Salmond MSP announced that Scotland's Modern Apprenticeship programme will expand to provide work for 30,000 young people a year by 2020.  The annual target for new modern apprenticeships is currently 25,000.

Modern Apprenticeships equip Scotland’s young workers with employment, skills and experience. Though the Modern Apprenticeship programme targets young people, in 2012-2013, 23% of those workers starting a Modern Apprenticeship were over the age of 25. Therefore, the Modern Apprenticeship Programme also provides an important opportunity to support older workers in developing new skills which can assist their career progression and job security.  Unions help to ensure that Modern Apprenticeships in Scotland are high quality and lead to industry-recognised qualifications.

Trade unions play an important role in the development and review of Modern Apprenticeship frameworks.  Unions also encourage employers to engage with Modern Apprenticeships and to offer good terms and conditions, decent pay rates and a safe working environment for apprentices.

The Modern Apprenticeship Toolkit from Scottish Union Learning, supported by Skills Development Scotland, contains practical information and case studies that describe the technical and practical aspects of the Modern Apprenticeship Programme in Scotland. It has a particular focus on occupational segregation and under-representation of Women, BME and Disabled workers.  The Toolkit features useful materials for Modern Apprentices, such as case studies, legal rights, pay levels and health and safety information.

This is the second edition of the Modern Apprenticeship Toolkit. It has been refreshed to reflect important changes in the programme.  There is also a concentrated focus on equalities due to the fact that BME and disabled workers continue to be underrepresented in the Modern Apprenticeship programme. In addition, many programmes suffer from gender stereotyping with consequent implications for the equal pay gap and the role of women at work. This toolkit demonstrates that unions can and do play an important role in tackling these equality issues.  

Unions must continue to fight for equalities with the expansion of the Modern Apprenticeship programme in 2020 and beyond.  Unions ensure that Modern Apprenticeship programmes respect equality and diversity and offer a source of support for apprentices, many of whom are new to the workplace. The Modern Apprenticeship Toolkit provides an overview of Modern Apprenticeships and outlines how unions, employers and individuals can successfully engage with the programme.  



You can download a copy of the Modern Apprenticeship Toolkit by visiting the Scottish Union Learning website at www.scottishunionlearning.com/apprenticeships.

Scottish Apprenticeship Week 2014 takes place from 19 to 23 May. More information can be found by visiting the Skills Development Scotland website at http://www.scottishapprenticeshipweek.com.

The Scottish labour market: digging beneath the headlines...

Brian Ashcroft posted an appropriately withering response to the political comment triggered by the latest set of labour market data for Scotland. He explains why enthusiasm over Scotland's 'record level of employment' is, ahem, misplaced and why comparisons between the performance of Scottish and UK labour markets over the course of the recession really should appreciate the starting point i.e. Scotland entering the recession with lower unemployment/higher employment.

Therefore I'll not dwell on the issues covered by Brian except to stress that achieving the 'highest employment level ever' really isn't a historically significant event. By my reckoning this is a claim that could've been made precisely 40 times since the current data series for Scotland started in 1992. As Declan Gaffney explains here, employment tends to rise over time with population. As Brian reminds us, the salient point is that it's taken a full seven years to recover the pre-recession peak.

The concern here is that intemperate political reaction - covered largely uncritically by an under-resourced media - can embed the notion that the labour market is 'back to normal'. There are a number of reasons to doubt this is the case.

Unemployment remains high and the method by which the figures are reported on a rolling 3-monthly basis can be misleading. Here's the unemployment rate and level for the past year:

The level reported yesterday is actually marginally higher than between Sep-Nov last year and the rate is the same (isn't it revealing how politicians switch so easily between rates and levels depending on what story they want to tell?). The rate is still 2.4% above that of summer 2008. This isn't great but it's also worth noting Blanchflower's recent observation that the sample size from which this figure is derived is so small that Scottish unemployment is bound to 'bounce around like a rubber ball'.

A big and as yet largely untold story of the labour market's slow recovery is the increasing number of older workers:

Only the 65+  group that has surpassed its pre-recession peak employment rate and the 50-64 group is at least getting close - the collapse in the youth employment rate in the early stages of recession was hardly unexpected but its failure to recover is quite disturbing:

The better performance of older workers has been particularly pronounced over the past year with older women doing especially well:

Of course this isn't all bad; it's good that older workers can remain in work if they want to. But the downside is undeniable: less jobs for young workers and many people forced to work longer than they would like to due to pension changes etc. Stubbornly high youth unemployment/low employment is the most visible signal that the labour market is in far from rude health. Some research on the reasons why many more older people are choosing/being compelled to work longer is urgently required. A Commission on the Older Workforce anyone?

It's certainly true that many of the trends that have caused most concern over the past few years are now starting to level off. Yet anecdotal feedback from trade union workplace reps suggests that these trends are unlikely to return to pre-recession levels anytime soon. Underemployment for example has started to fall but, at 234,000, remains 40% higher than 2007 (and of course underemployment in Scotland and UK is high by European standards). Male underemployment - both full-time and part-time - continues to rise:

A major component of underemployment is involuntary part-time working which remains 50,000 higher than 2008:

The increase in involuntary part-time employment accounts for the total rise in part-time working since 2008:

The failure of full-time jobs to recover is matched by the fall in employee jobs:

Self-employment is particularly interesting because, given the lag in Scottish statistics, we don't yet know if the massive increase in self-employment at UK level over the very recent period (for the UK as a whole: 183,000 or fully two-thirds of the new jobs reported yesterday were self-employed as were 52% of all new jobs created over the past year) is being replicated in Scotland. Recent trajectories suggest that despite the small fall in self-employment in the year to December 2013 it is entirely possible that Scotland may be on the verge of an increase as the more volatile Scottish series catches up with the UK:

The increase in self-employment is a concern for the post recession cohort of self-employed are working less hours, earning less money, paying less tax and contributing significantly to the rising cost of in-work benefits. Again, it would be good to have some decent research (or at least some up to date figures) at a Scottish level.

And of course all the above tells us very little about the quality of new jobs being created. Extrapolating from the latest ONS UK figures, it's reasonable to estimate that there may be around 120,000 zero hour contract jobs in Scotland. We know from workplace intelligence that other forms of insecure working such as 'pay between assignment' contracts are also on the rise.

The weakness of the labour market is starkly apparent in the unprecedented decline in real wages since 2009. Since no new reliable figures have been published I can do no more than link to the STUC's 2014 Budget Submission which provided some analysis of who's fairing well (top corporate managers and executives) and badly (lowest paid workers in the lowest paid sectors).

In summary, it's good that employment is rising and unemployment falling in Scotland but the labour market is nowhere near a state that would justify the grand political claims of yesterday.

Stephen Boyd
STUC

In praise of Land Value Tax: the case for change

We're delighted to present this guest blog by April Cumming (Holyrood researcher, Vice-Chair Scottish Fabians, Nordic Horizons, Electoral Reform Society) making the case for a Land Value Tax. While it's important to stress that this is not a statement of STUC policy, we are currently researching alternatives to the Council Tax with options to be presented to STUC Congress 2015. An appraisal of the benefits and disadvantages of LVT and other alternative forms of taxation is central to this process. The STUC also continues to be closely engaged with ongoing debate around taxation and constitutional reform.

It is a rare occurrence to sit in the company of experts who are able to describe what is on the surface a complex tax issue in simple terms.  Dave and Heather Wetzel, and their colleague Fife farmer Duncan Piccard, are three such experts.  As part of their trailblazing tour promoting the introduction of a Land Value Tax they dropped by at the Parliament for a one hour briefing session for policy enthusiasts, where they somehow achieved in a short space of time what the Mirlees report expresses in many long intimidating pages.  Namely a crystallisation of the arguments for why LVT is the natural and logical step to take in the journey towards a more equitable and fair distribution of land and resources in the UK.  It is a lever to fundamentally alter the way we engage with the land, our most valuable and misunderstood commodity. At a time where intermittent and sporadic spurts of growth have become a dominant characteristic of our economy, academics and policymakers have started to look for alternative methods of raising revenue that offer a more sustainable approach.  As a result of this there has been a growing body of opinion arguing for a fundamental shift in the system that favours a reduction of existing taxes to be replaced by an annual Land Value Tax.  The Labour Land Campaign is one of the voices in this argument.

At present we are witnessing what the Coalition government have lauded as the much anticipated green shoots of recovery.  What is disappointing is that, rather than recognising that these shoots are nothing more than perennial weeds the government have celebrated the beginning of what has all the hallmarks of the bad old ‘boom and bust’ of pre-crisis years, and dressing it up like a sturdy evergreen.  Cast your eye a few short administrations into the future and it’s not difficult to imagine the consequences of this return to the old economic orthodoxies of the past. As the OBR have pointed out this is a growth based on speculation in the housing market, on increased consumer spending and the gradually chipping away at savings to float the household budget.  In the long term this may only lead to further crisis.

The Coalition For Economic Justice, formed by a cross-section of think tanks to offer alternatives like LVT, have pointed out the inadequacy in the current system of valuing land and the corrosive effect these structures have on surrounding communities.  “Events are clearly demonstrating that the speculative rise in land prices is a common feature of the repeated economic booms and busts. In order to address this problem we call for a new approach that delivers both economic justice and prosperity for all. This solution must be based upon the annual collection of land value for public purposes".

This was a point echoed repeatedly by Duncan, Heather and Dave. The hypocrisy that lies at the heart of the current system of land ownership in the UK is that land absorbs public funding and yet the profit generated through the use of that land is then returned to the owner rather than those who contribute.  The example used by Dave Wetzel to illustrate this point is the expansion of the Jubilee line in London’s underground.  As a result of greater connectivity to the city the land that lies adjacent to the expansion accumulated in value significantly.  And yet, none of this benefit was returned, despite the use of public funds through infrastructure investment.  Those who benefit from this expansion are those who already own land on the route, the speculators. It cost the taxpayer £3.5bn but resulted in a £10-13bn increase in land values along the route; when one considers this net gain, which was the fruit of public investment, does it not then follow that as land values rise they should in turn be taxed, returning a proportion of the gain to the public purse?  Imagine the difference that this would make to the ability to fund further infrastructure?

Such funding could go to building vital housing, and in the process create employment. Couple land speculation with the fact that there is a dire need for affordable housing in capital cities across the country and it’s not hard to understand the need for a more equitable system.  Land that has been sat on purposefully by UK and foreign speculators as it accumulates in value could be used to generate an income for an entire community, making their homes not only a more pleasant place to be but also making adjacent businesses more prosperous. 

While many may term a shift to a land based tax as being a radical shift this is not new thinking.  The governments of Lloyd George and Winston Churchill made efforts to introduce LVT, both consecutively overruled by the House of Lords at the time. It has also been recognised as a viable alternative to income tax and business rates by the current business secretary, who acknowledged that the ability to shift wealth around the globe to find favourable business environments has lead to a growing imperative to re-assess where and how wealth should be taxed.

 "It will be said that in a world of internationally mobile capital and people it is counterproductive to tax personal income and corporate profit to uncompetitive levels. That is right. But a progressive alternative is to shift the tax base to property, and land, which cannot run away, [and] represents in Britain an extreme concentration of wealth."

-       Vince Cable, Liberal Democrat conference, Liverpool, 22 September 2010

But bringing in an LVT first requires a land register with up to date, transparent information on who owns what and at what cost.  Scotland’s own Land Review Group fell disappointingly short of the mark on progressing the case for an updated register.  However, the recent musings of the Scottish Affairs committee in Westminster have suggested that this is a potential development, as the case for a more transparent system is brought forward.  As their interim report points out, “no government which has any pretentions to land reform can avoid the need for full and clear information on its existing ownership patterns to be widely available”.  This is a starting point but the political will to engage with campaign groups and start to make a pointed shift in how we tax wealth in this country must exist both north and south of the border.  Two thirds of the UK’s 60m acres of land are owned by just 0.36% of the population. An annual Land Value Tax levied land would affect these wealthy landowners rather than ordinary homeowners across the country and create a case for long term sustained capital investment.  Sitting on land would no longer be a viable business choice.

This issue is not the reserve of the land and estates or the highlands.  It takes in the unused land in our cities and towns, where a lack of targeted legislation has allowed the build-up of pockets of wealth that have a direct negative impact on the people who ought to have a direct stake.  The buildings sitting on valuable land are allowed to crumble, as the current system allows it.  This is, at its heart, an issue of power.  Power lies with those who have the ability to control land use, namely the tiny percentage of the population capable of the privilege of ownership.  Any government who makes even a passing reference to their left wing credentials has a duty to engage with the issue of land whole heartedly because in doing so they may facilitate a sea change that not only improves the lot of small businesses but also rebalances the economy in a sustainable, equitable manner. No more boom and bust and speculation, Land Value Tax could be the seed that creates the evergreen recovery we so badly need.

April Cumming

May 2014