Unions are doing a bad job for Britain

More people now do low-skilled work—why aren't the trade unions doing more to represent them?
June 19, 2013

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A strawberry picker at work in Northumberland: "three-quarters of British strawberries are now home-grown" © Chris Laurens

If you are lucky enough to be invited to Wimbledon this year, the strawberries you eat will probably have been grown in this country; about three-quarters of British strawberries are now home-grown. Back in 1990, most of our strawberries were imported.

Import substitution is generally to be welcomed, especially in a country with a huge trade deficit. But the Wimbledon strawberries are not a sign of economic success. On the contrary, they are a sign of what economists call a low skill/low productivity equilibrium. Thanks to Britain’s flexible labour market, and its low wages, all sorts of basic economic activity is profitable here that is not profitable in, say, Denmark or Germany.

That helps to create jobs—though in the case of the strawberries, most of the workforce is imported from abroad on temporary contracts. But it also reduces the incentive to automate or even to organise the workplace more efficiently and so to move up the chain to higher productivity and better paid work.

The low level of trade union organisation at the bottom end of the labour market is one reason for the long tail of poorly paid “bad jobs.” And the unexpected small upward blip in union membership in 2012—the first increase in private sector membership since the 1970s—is unlikely to change that.

In any case, the low level of unionisation among the working poor where, one might think, unions are needed most, is a symptom of something bigger that has happened to the British economy and labour market in the past two decades. For those home-grown strawberries are a fruity rebuke to the dominant economic narrative of an emergent “knowledge economy” driven by an expanding army of highly-skilled graduates. That story is not completely wrong but, according to Cambridge economist Robert Rowthorn, it misses the bigger picture: the entrenchment of “a kind of dual economy, sometimes called an hourglass-shaped economy, with about 35 per cent of people working in high productivity sectors—from cars to finance—and another 35 per cent working in a low productivity sector, mainly private sector services like retail, cleaning, care and hospitality.” Since 2009 almost all new jobs have come in the low productivity sector.

One of the biggest public policy errors of the past generation in Britain has been the belief that low-skilled jobs were on the way out. When I was the employment editor of the Financial Times in the early 1990s, almost every week a new report would land on my desk declaring the imminent disappearance of low-skilled jobs; it was assumed that in the future everyone would be working in highly-skilled jobs in business services or the creative sector. Gordon Brown, in his penultimate budget as Chancellor in 2006, declared: “We will need only 600,000 unskilled jobs by 2020.”

Today, however, academics and labour market analysts such as Rowthorn, Caroline Lloyd, Ken Mayhew and John Philpott reckon that there are, depending on your definition, anything between 8m and 11m low-skilled jobs in the British economy; jobs that require no significant educational qualifications and can be picked up in anything from a few minutes to a few days. In some sectors the numbers are falling; in others they are rising. Overall, the number seems pretty steady.

Most of these jobs are also poorly paid. Around 1.5m are paid at the minimum wage of just over £6 an hour, but another 5m, according to Philpott, are paid at below what activists and some policymakers refer to as the “living wage”—described by David Cameron in 2010 as an idea “whose time has come”, it is conceived as the minimum pay rate required for a worker to provide his or her family with the “essentials of life”. This is currently agreed to be £8.55 an hour in London and £7.45 in the rest of the country. Many of these workers qualify for the working tax credit “top-ups” introduced by Gordon Brown. According to the Institute for Fiscal Studies, paying workers less than the living wage costs the Treasury around £6bn a year due to lower income tax revenue and national insurance payments, and higher spending on benefits and tax credits.

Since status increasingly follows the money, most of these jobs, however vital some of them might be, are not socially esteemed. The old idea of the dignity of labour—that any job, however menial, has a purpose and respect attached to it—seemed to die with the heavy industry that inspired it. When most people in the country were doing pretty basic, low-skilled work, as was still the case 50 years ago, it made no sense to disdain it. But when an increasing number of their generational peers are going to university or working in the better-rewarded high productivity third of the economy, it becomes inevitable, perhaps, that people will start to look down on more basic jobs, especially those that involve serving the richer and better educated.

There is often a mismatch between the high expectations that many young people acquire before they leave school—in many cases without the exam results to turn those expectations into reality—and the grim reality of the third of the labour market taken up with low productivity work. This may be part of the explanation for why, despite buoyant private sector job creation, youth unemployment is stuck at around 1m (about 20 per cent of 16 to 24 year olds), which is higher than it was in the recession of the early 1990s. With the stress in mainstream culture on aspiration and success, the basic jobs that we still desperately need to fill—cleaning, supermarket shelf-stacking, caring for the elderly and so on—are seen by too many young people as only for “failures and foreigners.” What is more, many employers openly admit to preferring older workers or eastern Europeans with lower wage expectations and often a superior work ethic, especially in the hospitality sector and parts of food manufacturing. Around 20 per cent of low-skilled jobs are filled by people born outside the UK. It is true that, in the past year or two, downward pressure on immigration from outside the European Union and some of the recent reforms to the welfare system have created an increase in domestic employment in sectors like social care, but employers often struggle to recruit locals at the wages they can afford to offer.

Increasing the pay and status of the bottom 10m in Britain’s hourglass labour market has become a central issue in British politics, especially, but not only, on the centre left. Ideas such as “predistribution,” which focuses on the level of market rewards before state redistribution through cash transfers, and phrases like the “squeezed middle”—both popularised by Labour leader Ed Miliband—are all based on the idea that pay at the bottom should be higher. But how will that happen?

In the past the answer was simple: trade union organisation. And for the first time in a decade, union membership actually rose, by 59,000 in 2012. After reaching a high point of 13m in 1979, union membership in the UK has halved to about 6.5m, falling sharply in the 1980s and 1990s and then more slowly after Labour returned to power in 1997 (mainly because it expanded employment in the union-friendly public sector). But of the 26 per cent of the workforce who are still in a union most are in the public sector, where more than half of employees are unionised, compared with just 14 per cent in the private sector, though that does include strategically important sectors such as large manufacturing plants, utilities and transport.

The unions have a particularly weak presence in the low-skilled and poorly paid one-third of the labour market where they are needed most, both from the point of view of individual workers and, arguably, from that of the British economy (countries which do not have such a long tail of low pay, such as Germany or Denmark, are hardly economic failures). However, this is less surprising than it seems if you consider trade union history. The origins of trade unionism in the 19th century lie in the “labour aristocracy” of craft unions which themselves had some distant relationship to the trade guilds of the Middle Ages. The end of the 19th century saw the emergence of more general unions—most famously what later became the Transport and General Workers Union (TGWU)—among semi-skilled and unskilled factory hands and dockers. The tussle for status between these two strands of trade unionism is an important part of the story in the 20th century. This was a story that finally petered out in 2007 with the creation of the mega-union Unite out of the remnants of the TGWU and Amicus, itself created from a merger of two large craft unions.

Meanwhile as trade unionism dwindled in the private sector with the disappearance of the old heavy industries, and the declining size of the average workplace, the centre of gravity of British unions shifted to the public sector. It also moved up the income and status scale. Astonishingly, 52 per cent of union members now have a degree or some other higher education qualification, compared with just 41 per cent of the workforce as a whole. So, in their 150-year history, the unions have moved from being mainly guilds for skilled craftsmen to being mainly guilds for public sector professionals, with a phase in the middle when they also recruited poorer, less skilled workers.

Today, at the sharp end, in the bottom 10m, among the cleaners, deliverers, call centre workers, bar staff and care workers, unions are largely absent. There is one notable exception: USDAW, the shopworkers union. It is the only large union that has grown through recruitment in the past decade rather than through merger. It now has 427,000 members, up almost one-third over the past 10 years.

USDAW has grown because employment in retail has grown and it is recognised by most of the big supermarket chains, including Tesco, Britain’s largest private sector employer. But even USDAW has to run to stand still—partly because of the high churn in the sector, it lost 60,000 members last year and recruited 70,000. And its 335,000 members who work in retail represent only around 10 per cent of the workforce in that sector.

John Hannett, the USDAW General Secretary, says that “most unions never really recovered from the ending of the closed shop in the 1980s. They never re-learnt how to recruit and retain members.” His own union has had no choice but to develop those bread-and-butter skills, and it has done so with an impressive business focus.

The upward tick in union membership has come in retail and other parts of the private sector, as public sector employment continues to decline quite sharply. But it does not represent a return of union power, least of all at the bottom end of the labour market. For it is not so much union membership that matters but collective bargaining coverage in workplaces and even whole sectors of the economy. “And here,” says Carl Roper, the Trades Union Congress national organiser, “the news is less encouraging. Overall, collective bargaining coverage has continued to fall and is now below 30 per cent.” He points out that it is beginning to fall even in the public sector.

The contrast with Germany is striking. Union membership in the private sector there is not very much higher than in Britain, at only just over 20 per cent. But almost 60 per cent of German private sector workers are covered by collective agreements on pay and conditions. This does not mean that individual union membership in a workplace that does not recognise a union for bargaining purposes is pointless. Union membership is increasingly an individual insurance policy, providing various work-related services, above all legal support in the event of disciplinary proceedings or redundancy.

But it does little to challenge the overall weaker bargaining position of workers in relation to employers or the falling share of wages in national income, which partly reflects that. The share of wages in GDP was 65 per cent in 1975 and is now around 50 per cent. For that bargaining position to shift workers need changes in the law; in other words, they need politics. And here, as in so many other areas of economic life, the German model is fashionable once again, at least among union leaders and centre-left politicians. Indeed, at the end of April, Frances O’Grady, the General Secretary of the TUC, became the first leading union figure to admit that British unions made a “strategic error” back in the 1970s in not opting for a German-style system when it was on offer from the then-Labour government.

The German system of “co-determination” introduced in the 1950s requires that employees be represented on company boards and given an institutionalised “voice” in day-to-day managerial decisions through works councils. This system, which only applies to larger companies, is not without its critics in Germany, but the constraints on managerial power that it creates seem to be more than compensated for by the sense of responsibility that it engenders among unions. It is employees and not unions that are the legal beneficiaries of co-determination, but employee representation tends to be dominated by unions.

O’Grady, who is the first female General Secretary of the TUC, had this to say about German-style industrial democracy in a recent lecture: “It poses a challenge to us in the trade union movement. It implies a role that is not just more ambitious, but more demanding, than the one we usually have now. It means accepting responsibility, moving out of a comfort zone of short-termism.”

Opting for this German model of industrial relations did not seem so attractive to O’Grady’s predecessors back in the 1970s, when shopfloor power was still considerable and there was an entire legal framework of wages councils, industrial training boards and sector bodies in which unions had an institutional voice.

These have mainly been swept away in the past 30 years. But if you listen carefully you can hear the stirrings of an admittedly diluted version of 1970s corporatism. In a wonderful irony, on the day that Margaret Thatcher, the slayer of corporatism, was buried there was a preparatory meeting of civil servants and industry leaders for the sector body consultation meetings being planned by the Department of Business, Innovation and Skills (BIS)—cousins of the so-called “little Neddies,” the industry consultation bodies set up by the Macmillan government in the early 1960s.

The BIS sector bodies will be modelled on the much admired Automotive Council established by Peter Mandelson in 2009, when he was Business Secretary, which is thought to have played some role in the recent success of the car industry in attracting a new wave of inward investment. Unions have a voice on the Automotive Council and will be represented on BIS’s sector consultations too.

A related development that could increase the institutional clout of unions is the possible return of some sort of national apprenticeship system. Proper industrial apprenticeships declined drastically with the disappearance of the industrial giants, such as ICI, that used to offer most of them. And unlike in Germany, there was no national framework to help sustain them in the businesses that remained.

Paul Corby, the former National Construction Secretary of the Amicus union, says that the failure to sustain a strong culture of intermediate technical and manual skills has contributed to the decline of middle income/middle status jobs, which is one reason for the emergence of such a stark dual labour market. “The old craft unions were an important local lobby for higher-end manual skills training, but in the great wave of union mergers their influence got drowned out and the training world came to be dominated by professional graduates.”

With so much focus on the expansion and reform of higher education in the past 20 years—including a target in the early 2000s of sending half of the age cohort to university—technical and higher manual skills have continued to be relatively neglected. This is another reason why employers have been so keen on substantial immigration of skilled manual workers from Ireland, eastern Europe and elsewhere. According to union estimates about 70 per cent of skilled construction workers on big civil engineering projects in southeast England are not British.

International evidence suggests that where union collective bargaining remains relatively entrenched, income inequality is tempered and the hourglass economy less pronounced. Yet in Britain, despite the return of some union influence as industrial policy has become fashionable again, it seems unlikely that the decline of collective bargaining will be reversed.

At the very least this is something that ought to be on the agenda of the main centre-left party. One reason it is not is the increasingly dysfunctional institutional relationship between the unions and Labour. The fact that Ed Miliband was partly elected on union votes and that most of the party’s funding comes from the unions means that he is unable to talk to the country about why a return of moderate union influence would be a good thing. One group noticeably absent from Labour’s “One Nation” are the very trade unions that founded the Labour party in the first place.

If Labour was less institutionally bound to the unions it could also be a more critical friend. And the unions need such friends because for every moderate and successful USDAW there is a declining behemoth like Unite, created out of several union mergers and riven by power struggles between different factions of the left. Len McCluskey, the General Secretary, has just been re-elected-—beating off a challenge from the far left—on a turnout of just 15 per cent.

The other union leaders who have caught the public eye—such as Mark Serwotka of the Public and Commercial Services Union or Christine Blower of the National Union of Teachers—are leftist militants whom we hear about only when they are calling for a general strike or making visits to Cuba. And Unison, the main public sector union, is notorious for its “loony left” branches. One recent example illustrates just how unrepresentative some branches are. In a large London council, the Unison branch has about 4,500 members of whom around 25 turned up to the last meeting, where a motion was proposed condemning the Woolwich murder, the EDL and Islamic extremism. At the urging of the Socialist Workers Party, an amendment was proposed deleting the reference to Islamic extremism. It passed by 13 votes to 11.

One small change that could help the unions to become less dominated by such unrepresentative cliques is to introduce online voting. This is the kind of thing that Ed Miliband should be suggesting but can’t because of Labour’s union connection. Instead it is left to Robert Halfon, the Tory MP for Harlow who has long taken a constructive interest in union affairs, to argue in favour of this idea. But help may be at hand for both sides in the loveless marriage that is Labour-union relations. Unite is thinking seriously about disaffiliating from the Labour party, following in the footsteps of two small left-wing unions—the rail union, the RMT, and the fire brigade union, the FBU. If that happens, other Labour-affiliated unions might follow suit.

Could that liberate both Labour and the unions to act more effectively on behalf of Britain’s bottom 10m? And what might that mean in practice? A much higher minimum wage—you might call it a living wage—is the most likely route to a higher wages floor. So far, despite good publicity, the living wage campaign has delivered wage rises to only about 45,000 workers, according to Jane Wills of Queen Mary, University of London. Around 15,000 of them are in London, many of them employees of large, profitable organisations in the City. But this campaign is still in its infancy—only around 100 companies are signed up—and the power of publicity and transparency—“naming and shaming” at least larger employers—has untapped potential.

One obvious objection to such a campaign is that it will drive large numbers of smaller businesses to the wall. “Just because the national minimum wage at the end of the 1990s increased incomes without the job losses that some people had feared does not mean that an over-ambitious living wage would have the same benign outcome,” says the influential labour market consultant John Philpott. “But,” he adds, “there is also a strong case for politicians to say that there are some low-paid jobs that we simply do not want to encourage—they cost the taxpayer too much in tax credits and keep us trapped in the wrong sort of economic structure.”

Pay is not the only thing that can be improved for the bottom 10m. Even quite basic and repetitive jobs can be designed in such a way that they are more satisfying to do. It is about simple things: listening to employees, reducing the monotony with some job rotation and offering a sense of progression to those who want it and have merited it. There are employers who employ lots of people in quite basic jobs—such as food retailer Iceland and Admiral, the car insurance company—who also win prizes for creating places that are good to work. “If people like what they do they will do it better, it’s as simple as that,” says Henry Engelhardt, Chief Executive of Admiral.

This sort of best practice evidently does not spread of its own accord. The key is to nail down some sort of right to an employee voice even if it falls short of full-blooded German-style co-determination. So perhaps it is possible to imagine a “grand bargain” in which the unions, having regained some national legitimacy by disentangling themselves from the Labour party and re-engaging with their own members, lead a successful “bottom 10m” campaign for a living wage and increased consultation rights. To minimise the economic costs, there could be a long lead-in period for the implementation of the living wage, giving employers time to adjust and counteracting the squeeze on differentials. There could also be exemptions for smaller employers with tight margins.

Ed Miliband said about his party recently that “the clue is in the name,” but the remarkable thing in recent times is how little Labour has had to say about what actually happens in workplaces. Interfering with a manager’s right to manage has been taboo for a generation. But what if that managerial freedom has produced an epidemic of low pay and productivity and a higher benefits bill? It may be time for Britain’s workplaces to get political again.