Are we heading into a 1970s revival? Inflation soaring, strikes looming and a decent result in Eurovision might suggest we are. Rail staff and barristers are already on strike. Unions representing teachers, doctors, local authority staff and civil servants may all be balloting on strike action soon, raising fears of a “summer of discontent” to rival the notorious winter of 1978-1979.
In reality, today’s circumstances are strikingly different to those of the 1970s.
Inflation is heading up towards a similar level, but so far the scale of the energy price shock caused by post-pandemic pressures plus the war in Ukraine is significantly less than that caused by the oil shocks of the 1970s. Inflation has also not (yet) become “de-anchored”—it is still clearly linked to specific causes rather than just spiralling upwards because of public expectations. Monetary policy, while similarly slack in the run up to this shock, now focuses on inflation targets, so central banks are more likely to act to prevent inflation spiralling upwards for a sustained period of time.
The labour market has similarly changed enormously in recent decades.
Unemployment is below 4 per cent, similar to the very early 1970s, and still falling. By contrast, in the late 1970s unemployment climbed towards 6 per cent and shot up to 12 per cent by the mid-1980s.
At the end of the 1970s, the employment rate was 72 per cent, dipping to 66 per cent by the mid-1980s. Today it is at a record high of 76 per cent.
Perhaps most importantly in the current context, union membership is far below its 1970s heyday, and the power of the unions has been eroded enormously.
In 1979, 13.2m workers were unionised. By 2019 it had collapsed to only 6.5m—just a quarter of employees. Union membership is highly concentrated in the public sector—with half of employees unionised, compared to only one in seven private sector employees. And union power is not what it was, even where coverage remains reasonable. Just look at public and private sector pay over the last decade: private sector pay is 4.3 per cent higher than it was in 2010 while public sector pay is 4.3 per cent lower.
In today’s labour market, our big challenges are poor productivity, persistent low pay and job insecurity. About one in seven workers are low paid. The rising minimum wage (now the National Living Wage) has helped, but low pay has become more persistent, with those at the bottom unable to work their way up to better paid jobs. The number of workers in poverty has climbed steadily, driven not only by low hourly pay, but job insecurity and underemployment. They can’t get the hours they need or find steady, predictable work.
Last month, the Work Foundation published the first UK Index of Job Insecurity. It has developed a definition of job insecurity covering contractual insecurity, financial insecurity and access to workers’ rights. Nearly one in five workers in the UK—or 6.2m—are in severely insecure work, with another 10.3m in low to moderately insecure jobs. It’s far higher in some sectors—a third of people in hospitality face severe insecurity. In the transport sector, nearly a fifth of workers experience severe insecurity, and it’s nearly as high in sectors such as education and health which have traditionally been very secure.
Of course, some people choose this way of working, but for many it is an unwelcome necessity forced on them by an absence of better opportunities and their lack of power in the labour market (a powerlessness reinforced by the waning of union clout and coverage). A 2019 study found about half of workers on temporary agency or zero-hours contracts would prefer a permanent contract, and many would accept lower wages for increased security. Workers were willing to give up just over half their hourly earnings to get a permanent contract and over a third for a one-year contract and over a third of their wage for holiday and sick pay.
This level of insecurity causes serious hardship and is a drag on our national productivity. Poor quality jobs and grinding poverty erode people’s health, making them more likely to have to stop working or miss shifts through sickness. Precarious work leaves people cycling in and out of jobs and doesn’t usually come with training or the chance to work your way up.
During the pandemic, workers on insecure contracts were far more likely to lose their jobs and less likely to be protected by the furlough scheme. They are more exposed to the current cost-of-living crisis, both because of their financial precariousness and because employers may counter economic headwinds by cutting jobs or hours among staff with fewer rights. In fact, the government has responded to the threat of strikes by bringing forward changes to allow employers to use temporary agency staff to replace striking workers. This has been condemned as unworkable and counter-productive, not only by the unions (as you’d expect) but also by the Recruitment and Employment Federation, which represents 3,000 agencies.
The government faces a genuinely difficult decision: how to achieve a workable and fair deal on public sector pay without fuelling the inflation that is hitting living standards, especially for those on low incomes. But we need to break our constant lurching from crisis to crisis if we want to improve the long-term health of our economy. Overblown talk of a return to the 1970s, or the spectre of over-mighty unions, is out of step with reality. It does nothing to help us get to grips with the actual problems dogging our economy, such as the endemic job insecurity and in-work poverty that undermine growth and living standards. There is little sign yet of a serious plan that goes beyond short-term fixes. Bringing back the long-promised Employment Bill (dropped from this year’s Queen’s speech) would be an excellent start.