LRD Booklets February 2015

Pay: getting it right - bargaining information for union reps

Introduction
[pages 3-6]

Introduction

Negotiating, campaigning and representing members on pay and related issues remains at the very heart of trade union activity. The need for strong trade unions to campaign for pay increases for UK workers has become increasingly pressing given the wealth of data showing the extent to which wages have fallen behind the cost of living since the onset of the financial crisis in 2007-08, and the decline in the share of national income going to wages since the 1980s.

While trade unions have stepped up campaigns and collective action to secure pay rises over the last year, in some cases union representatives face the challenge of simply ensuring that workers receive what they should be entitled to from their employers. This booklet seeks to provide trade union members and reps with the key information they need when dealing with pay-related issues, whether enforcing statutory rights or negotiating pay increases.

The booklet provides a guide to the key statutory pay entitlements available to workers, including information that should appear in their pay packets and full details about the National Minimum Wage.

It also explores the different forms of pay systems that reps and workers may encounter and which trade unions have to deal with.

The booklet then details the key points union reps need to consider in drawing up a pay claim and negotiating on pay and the key sources of information available. Key equality principles and entitlements are also explained, covering different protected characteristics and workers on different types of contract. This is followed by an overview of developments around the Living Wage, including key data and the arguments for paying a Living Wage, union campaigns and policy proposals; and the booklet concludes by detailing basic statutory entitlements relating to holidays, sickness, redundancy and parental leave rights and pay.

Further information references are provided throughout each Chapter.

The wages squeeze

Research published in the National Institute Economic Review in 2014 calculated that, between 2008 and 2013, real weekly wages fell by around 8%, or around £1,850 per year “for the typical (median) worker”. The fall for younger workers has been much larger, to the degree that real wages for those aged under 25 have fallen back to levels last seen in 1988. Nearly 30% of the workforce in the same job between 2009 and 2012 has experienced cuts in real wages.

This research was based on analysis of data from the Office for National Statistics (ONS), Annual Survey of Hours and Earnings and the Labour Force Survey, and used the government’s preferred Consumer Price Inflation (CPI) measure to track increases in the cost of living. Although actual earnings’ figures increased over time, they did not keep up with the higher increases in inflation, meaning a fall in wages in real terms.

Paul Gregg, Stephen Machin and Mariña Fernández-Salgado, The squeeze on real wages — and what it might take to end it, National Institute Economic Review, May 2014 http://ner.sagepub.com/content/228/1/R3.abstract.

Measuring inflation using trade unions’ preferred measure — Retail Price Index (RPI), which unlike CPI also includes housing costs and is the measure most commonly referred to by unions and employers in pay bargaining, reveals a greater decline in real terms wages over a shorter period of time.

The TUC has calculated on the basis of the ONS Annual Survey of Hours and Earnings and the RPI measure that average earnings for full-time employees have fallen by 8.4% since 2010, including by 1.8% between 2013 and 2014. This is equivalent to £2,509 a year or about £50 a week.

The fall in real median weekly earnings has been higher than the fall in hourly wages. This reflects sharp increases in the prevalence of part-time work, much of this involuntary. TUC analysis of Labour Force Survey data shows that the number of people in the UK defined as underemployed (working part-time but wishing to work more hours or full-time) increased from 2.3 million in 2007 to 3.35 million in 2013 (falling slightly to 3.2 million in 2014). At the same time, the increasing prevalence of zero-hours and variable hours contracts, agency work, involuntary (and sometimes bogus) self-employment and other forms of casualised work has increased insecurity and vulnerability across the workforce with many workers not knowing what their income will be from one week to the next (see LRD’s booklet, Casualisation at work — a guide for trade union reps, www.lrdpublications.org.uk/publications.php?pub=BK&iss=1733)

The report also shows that the share of national income (GDP) that went to wages averaged at around 59% in the 1950s and 1960s, peaking at 65.5% in the mid-1970s, but it has now been below 56% since 1982. This can be explained partly by the reduction in trade union membership and collective bargaining coverage.

In 1978, around 82% of workers in the UK had their working conditions set through collective bargaining. By 2013, this figure had fallen to less than 30%. It is worth pointing out in this respect that official data on trade union membership highlights a continuing trade union premium. Trade union members earn on average 16.4% more than those not in trade unions (BIS 2013 figures).

Stewart Lansley and Howard Reed, How to boost the wage share, TUC Touchstone pamphlet, https://www.tuc.org.uk/sites/default/files/tucfiles/How%20to%20Boost%20the%20Wage%20Share.pdf

K D Ewing and John Hendy QC, Reconstruction after the crisis: a manifesto for collective bargaining, Institute of Employment Rights, www.ier.org.uk/publications/reconstruction-after-crisis-manifesto-collective-bargaining

Rising inequality

While wage share has declined in recent decades, income disparities have rocketed.

The accelerating pay gap is at its most stark when considering the difference between the pay of the UK’s top executives and their employees. A High Pay Centre report in 2014 showed that the chief executives of FTSE 100 companies are paid on average 130 times more than their average employee. In 1998, the average FTSE 100 CEO was paid 47 times more than their average employee.

Other High Pay Centre research in 2013 showed that the share of national income going to the top 1% of the income distribution had more than doubled since 1979, from 6% to 14.5%, with the UK returning to levels of inequality last seen in the 1930s.

High Pay Centre, FTSE 100 bosses now paid an average 130 times as much as their employees, August 2014, http://highpaycentre.org/blog/ftse-100-bosses-now-paid-an-average-143-times-as-much-as-their-employees

Top to bottom: Understanding fairer pay, March 2013, http://highpaycentre.org/files/top_to_bottom_FINAL.pdf

Arguments have long been made about the unfairness of such large pay differentials in society and there is also a body of evidence showing the close correlation between high levels of inequality and increased ill health and social problems in modern developed economies (irrespective of overall levels of national income and wealth). Further information is available from the Equality Trust at: www.equalitytrust.org.uk.

International bodies normally associated with promoting economic deregulation and liberalisation of labour markets, such as the International Monetary Fund (IMF) and the Organisation for Economic Co-operation and Development (OECD), are also increasingly recognising that income inequality creates economic instability, reduces productivity and undermines social mobility.

An OECD study at the end of 2014 estimated that the UK economy would have been 20% larger were it not for the huge upsurge in inequality between 1985 and 2005. Increased inequality led to lower growth as it undermined education opportunities for children from poor socio-economic backgrounds, lowering social mobility and hampering skills development.

Federico Cingano, Trends in income inequality and its impact on economic growth, OECD Social, Employment and Migration Working Papers, December 2014, www.oecd.org/els/soc/trends-in-income-inequality-and-its-impact-on-economic-growth-SEM-WP163.pdf

Further information about the IMF’s work on income equality can be found at: www.imf.org/external/np/fad/inequality

Low pay and the Living Wage

A Resolution Foundation report on low pay in 2014 pointed to OECD data showing that the UK retains one of the highest proportions of employees in low paid work in advanced economies. The share of employees in the UK earning below the low pay threshold in the period 2010-2012 is significantly higher than in most other European countries. The report also shows that the proportion of UK workers with low pay had risen from around 15% in 1975 to a peak of 23% in 1996, and had not fallen at any significant rate since. In April 2013 the figure stood at 5.2 million, or 22%.

Adam Corlett and Matthew Whittaker, Low pay Britain 2014, Resolution Foundation, October 2014, www.resolutionfoundation.org/wp-content/uploads/2014/10/Low-Pay-Britain-20141.pdf

The definition of low pay used by the Resolution Foundation was hourly wages below two-thirds of gross median hourly pay (excluding overtime) for all employees, equivalent to £7.69 an hour in April 2013. This was slightly below the more recent UK Living Wage figure — calculated to reflect the minimum amount workers need to cover the basic costs of living — published by the Living Wage Foundation at £7.85 (November 2014), but well below its London Living Wage figure of £9.15.

The work undertaken by the Living Wage Foundation to promote the Living Wage, and campaigns by unions to ensure employers pay it as a minimum, is explained in more detail in Chapter 6.

Britain Needs a Pay Rise

Action co-ordinated by the TUC, such as the Britain Needs a Pay Rise demonstration in October 2014, has also provided a rallying point for trade unions, as well as a wealth of useful data and campaigning tools. Two weeks of campaign activities, Fairpay Fortnight, were organised by the TUC to raise awareness of Britain’s cost of living crisis and the squeeze on wages at the end of February 2015.

The economic case for pay increases is clear. The fall in the real value of wages has had a detrimental impact on economic growth, sucking demand out of the economy as households struggle to make ends meet. In the UK, the decline in the real value of wages means that the much vaunted economic recovery has not been felt at all by many households. This (and the imminent general election) may help to explain why even prime minister David Cameron called on business leaders to give their employees a pay rise in February 2015, despite the government blocking proper pay increases in the public sector since 2010.