Ignore the USA

In navigating this complex and important debate, I have one rule of thumb: ignore the United States of America.

Why is that a good idea?

First, if we focus on the US, we soon conclude that “wages and productivity growth are now completely unrelated”. This is something that has been a problem in the US in recent decades, but has not been true in the UK. Greater growth and productivity in the UK, where it happens, generally does lead to higher wages.

Fixating on America, risks leading us to solutions which ignore the importance of productivity – at a time when a lack of productivity growth is the main reason for stagnant wages in Britain. And if we follow the problem of low productivity, you reach the conclusion that we need more robots – not less.

Second, if we spend time reading all about the US, we conclude that inequality is always rising at all times, in all places, as it has been rising in the US for a very long time. This is a dangerous assumption because it is not true and, if we think that it is, you end up in nihilistic position of believing policy cannot make much difference.

People look at the US debate and see the hollowing out of middle-skill, middle-paid jobs in the economy as a result of automation. There has been a reduction in middle-skill jobs in the UK too, however, there has not been the same hollowing out of the pay distribution. In fact, there has been almost no major change in UK pay distribution since the 1990s, except right at the bottom of the pay scale, where the minimum wage had a massive impact. Inequality has risen in the UK, but not because of a hollowing out of the economy.

This wrong-headed approach also risks underestimating the difference that good social security systems can make in tackling inequality. If we want to tackle child poverty, we have to use a social security system. Despite what George Osborne and others say, there is no minimum wage that can compensate for tax credits or in-work universal credit. This is the case for a whole host of reasons, including the fact that many low-paid people are married to each other. We need a functioning social security system and minimum wage to tackle child poverty – not one or the other.

The third reason to ignore the United States is that, we risk believing that worklessness is a huge problem, a growing problem, and inevitable. In the US, we have many sensible people arguing that male labour force participation has been falling for the last twenty years and will inevitably continue to do so. However, it is only the US that has managed to drive so many people out of the labour force, as a result of policy failure driven year in, year out, by dysfunctional politics and not thinking it’s right to have an active welfare state.

That is not the case in the UK. We do not have a worklessness problem, despite what Iain Duncan Smith says. We have the lowest level of worklessness in our history. We have really quite progressive growth in employment in many ways.

But we do have new problems, like a lack of progression in work and people not being given enough hours to work. Low paid men, in particular, have seen their hours slashed over the last 10-15 years, and this is a major factor in driving up inequality. But if you

want to tackle this, the answer is not UBI and a future without work, it is legislating to enable people to get the hours and the certainty they want.

The fourth reason why looking to the US is unhelpful, is that it gives the impression that technological change looks like a steel mill closing down. The result of this is smart people looking at the Trump phenomenon and concluding that the problem of politics and technological change today is the closure of major employers leaving towns barren. But this is something we knew already – we saw it in the 1980s. That is not what technological change looks like across most of Britain today, except in a few select cases.

The technological change that is happening today is much more geographically diffuse. Since the financial crisis we have seen a 1% drop in employment share in retail and an almost parallel rise in employment in distribution – that is what technological change looks like in the UK today. The problem is not the geographical one we had in the 1980s, although we still have the legacy of that, but it is more diffuse and much harder to see. And we have to make sure we support people through that transition into better jobs.

Looking at America tells you that issues that must be addressed in business today revolve around big tech – but hardly anyone in the UK works in big tech. While innovation in digital technology is important, we need to be talking about the problems businesses face that affect British workers. If we care about social justice today, we need to be talking about what a good warehouse looks like.

Finally, there is a danger in focusing too much on Donald Trump.

Donald Trump tells us that there is some kind of structural trend towards a really polarised, nasty politics, where a similar outsider could take the reigns of government in the UK. My slightly more optimistic view is that there are actually many ways in which a growing consensus is forming – and we have seen this at the conference today – about how to reform the British economy.

There is agreement that we need better work, more power for workers in the workplace, to build more housing, rising incomes, that place matters. So, my overall conclusion is that we need to ignore America and get on with changing the UK.

Torsten Bell is the Director of the Resolution Foundation

This post is a summary of Torsten’s remarks at the APPG’s Future of Work and Inequality conference.