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David Coats - In work poverty, income inequality and the squeeze on living standards – and what to do about them.

David Coats - In work poverty, income inequality and the squeeze on living standards – and what to do about them.

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Published by onenationregister
David Coats writes on in-work poverty, income inequality and the squeeze on living standards – and what to do about them.
David Coats writes on in-work poverty, income inequality and the squeeze on living standards – and what to do about them.

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Published by: onenationregister on Apr 30, 2013
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05/14/2014

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In-work poverty, income inequality and the squeeze on livingstandards
 –
and what to do about them.By David Coats
A Labour government elected in 2015 will confront three problems deeplyembedded in the structure of the British labour market: the persistence of thewide inequalities of income that first emerged in the 1980s, the growth of in-work poverty and stagnant wage growth (since 2004) for all those belowmedian earnings.Of course, British society was considerably fairer in the past than it is today.And many developed countries continue to achieve a more egalitarian
distribution of incomes despite the supposed pressures of “globalisation” and“skill biased technical change”.
The social achievement of the post-war period (1945-79) rested on threepillars. First, the commitment to full employment. Second, the developmentand maintenance of a generally redistributive welfare state. Third, thepresence of institutions in the labour market that delivered a fairer distributionof incomes
before
the intervention of the tax and benefit system
 –
what wenow call predistribution. Relatively high levels of union membership, thewidespread observance of collective agreements, action by the state to extendthese agreements to non-
signatory employers, the application of “fair wages”
policies in public procurement and the fixing of sectoral minimum wage ratesby the wages councils all helped to sustain this third pillar.The Thatcher and Major governments launched an assault on each element of the post-war consensus. While full employment was an illusion for most of the1979-97 period and the welfare state became significantly less generous, thereal Thatcherite revolution was the comprehensive demolition of the
 
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institutions of predistribution. From 1997-2010 Labour was largely successfulin restoring full employment and did much to refurbish the welfare state, butbeyond the introduction of the National Minimum Wage, little was done toreshape the initial distribution of incomes in the labour market.This helps to explain, for example, why the tax credits policy was reaching thelimits of its effectiveness as an instrument for the reduction of child poverty.According to the most recent statistics more than 60% of poor children live infamilies where at least one adult is in work. Most of the recent increase in thehousing benefit bill is accounted for by the rising number of claims fromworking people with low incomes. And the imbalance of power in the labourmarket explains why workers (with little voice or influence over employerdecisions) have seen wages stagnate at the same time as productivity is rising.
There is much that we can learn from countries with more “inclusive” labour
markets, most notably the Nordics and to a lesser extent the Netherlands. Ineach of these cases a coherent set of policies and institutions all pull in thesame direction. The initial skills formation system gives young people a strongsense of occupational identity before they enter the world of work
 –
and theeducation to work transition is seen as a critical event affecting sustainedlabour market participation. There is an emerging system of genuine lifelonglearning that equips workers with the capabilities they need to respond tostructural and technological change, also creating opportunities forprogression and development. A serious effort is made
inside
the workplace toeliminate inequality and occupational segregation. And active labour marketprogrammes are focused on building the skills of the unemployed instead of  just encouraging (or compelling) people to look for work. All of thesemeasures are reinforced by strong and responsible trade unions, a balance of power between workers and their employers and real possibilities forworkplace participation. Developing the notion of an inclusive labour marketcould prove to be a big electoral advantage for the Party, enabling socialdemocrats to tell a compelling story about the world of work that has eludedmost politicians on the left for more than thirty years.To be fully persuasive the new labour market model must make a link betweenthe politics of production and the politics of distribution. The case for
 
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responsible capitalism and the argument for active industrial policy must run inharness with the argument for inclusive labour markets.Translating the analysis into practical policies will prove controversial becauseit raises questions about power and authority in the workplace. Someemployers (although by no means all) may prove resistant to persuasion.What makes the current situation different from the 1997-2008 period,however, is the brute fact of the economic and financial crisis. The legitimacyof British capitalism is threatened, the coalition have failed to produce acredible programme of reform and most of British business seems stuck indefending a discredited status quo.Labour should therefore consider the following as initial policy steps towardsboth a more responsible capitalism and a more progressive set of labourmarket outcomes.
Establish a commission on corporate governance immediately after the 2015election
: The Party is already committed to the requirement that listed
companies include a workers’
representative on the remuneration committeeto restrain the growth of executive pay. This is certainly an important proposalbut it still leaves most of the corporate governance terrain untouched. In 1995Tony Blair outlined a compelling model of 
“stakeholder”
capitalism, which wasquietly dropped when the extent of business opposition became clear. Thereis a strong case for reviving this approach through immediately after the 2015general election through the appointment of a Corporate GovernanceCommission. The Commission would be required to develop the architectureof responsible capitalism and would be expected to report within eighteenmonths so that legislation could reach the statute book before the generalelection in 2020. Part of the terms of reference should include someconsideration of worker representation in the boardroom, a common practicein much of the rest of northern Europe and arguably a source of resilience forthe Nordic and German economies in tough times. Moreover, a wider range of voices in the boardroom might counteract the short-term decision making thathas bedevilled British business and proved so damaging to economicperformance.

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