CLAIM:
“After 10 years of flatlining, people on low incomes are being paid more” - Boris Johnson on Andrew Marr Show, October 3
DOORSTEP ANSWER:
Look in your wallet or purse. Do you feel richer?
WEEKLY AVERAGE WAGES
The PM used the Tory conference to launch a new economic narrative: wages are rising, and this will force businesses to invest more in technology, raising productivity. At the same time, higher wages will offset Tory tax rises and welfare cuts. But is there any evidence wages are rising?
The main official source for wage data is the Office For National Statistics (ONS). According to the latest ONS figures, average weekly earnings (including overtime and before tax) were £578 in July 2021. The ONS data shows a steady increase (except for a bump in the early stages of the covid pandemic) from January 2000, when the figure was £300pw.
READ MORE: BBC denies Laura Kuenssberg and Michael Gove had 'rap battle' at Tory conference
However, we need to adjust for inflation to see the real purchasing power of wages. The real (after inflation) average weekly wage rose up till January 2008 and then fell sharply after the impact of the banking crisis and subsequent recession. Real wages only started to rise again in late 2014. They had just recovered their pre-banking crisis level when the pandemic hit. The result was another crash in real wages. In other words, there is a long 13-year period between 2008 and the pandemic when wage flatlined.
According to the ONS, there has been a seeming recovery in nominal and real weekly wages this year - which is probably what Johnson was referring to in his interview with Marr. However, the ONS (September 2021 labour market report) warns that we have to be extremely cautious in interpreting this data – the report uses the phrase “beware base effects”! In other words, the lockdowns have so distorted the labour market that the current rebound in wages cannot be compared directly with what went before.
In particular, the latest ONS report points to “a fall in the number and proportion of lower-paid jobs compared with before the pandemic”. With far fewer low-paid workers in employment, there is a corresponding statistical anomaly that the earnings data is capturing a greater proportion of more skilled employees returning to work, often attracted by big bonuses as for HGV drivers.
Result: counting from a low base and including proportionately more highly paid workers with bonuses, the net outcome exaggerates the rise in real wages since the start of 2021. The ONS is candid about this and warns against taking it at face value: “Average real-pay growth rates… should be interpreted with caution”. The PM and his staffers have neglected or ignored these warnings.
The ONS also provides data on sectoral pay movements. This data shows that in the three months May to July, annualised growth in total pay increased in all sectors, compared with April to June. Does this suggest low-paid workers in, say, hospitality, are suddenly benefiting, as the PM tried to argue? No.Comparing April to June with May to July, the ONS finds that in the early Spring wage growth in the whole economy was actually negative; and in the (generally low pay) retail, hotels and restaurants sector, pay was falling at an annualised rate of 5.4% per annum. This data contradicts the PM’s rosy picture.
DOES IMMIGRATION LOWER WAGES?
The PM’s Tory Party conference speech repeated his claim that membership of the EU single market allowed UK companies to import cheap foreign labour rather than invest in machinery and technology to raise productivity. In contrast, Brexit closes this door with the result that domestic labour shortages in the UK will boost wages and thus force employers to substitute more capital investment. Is this true?
One obvious riposte is that EU members such as Germany also use immigrant labour, yet their wage rates and productivity are far higher than in the UK. One pre-pandemic study showed that the average German worker could go home early on Thursday afternoon and still have produced as much as the average British worker who grafted through till Friday. Yet Germany welcomed fully one million Syrian refugees in 2015 while the UK accepted roughly 10,000.
Certainly, the UK invests far less in machinery and infrastructure than does Germany or our other industrial competitors. According to a recent House of Commons Library briefing (January 2020), in 2015 UK manufacturing used 71 robots per 10,000 employees, compared with 176 in the US, 301 in Germany and 531 in South Korea. This neglect of investment coincides with a dramatically falling share of manufacturing research and development in total UK R&D – down from 82% in 1985 to 65% in 2018 (and barely 47% in Scotland).
As a result, UK manufacturing was responsible for providing only 10% of UK GDP prior to the pandemic, a far smaller proportion than in most other major economies. In Germany, manufacturing accounts for roughly 23% of GDP. The explanation lies not so much inside manufacturing itself but in the domination of the City of London financial sector in the UK and in Scotland (providing nearly 10% of local output).
Effectively the City of London financial services sector has created a UK economic model based on consumer debt, underwritten by seemingly ever-rising house values. This, in turn, drives imports rather than local manufacturing. As a result, what remains of UK manufacturing is increasingly based on assembly work for foreign companies. For instance, the UK is a net importer of motor parts. The UK car sector is basically a screw-driver assembly industry for imported European and Japanese components. Low wages are the result of this economic model, not immigration.
CONCLUSION
In response the PM’s wage claims, the Thatcherite Adam Smith Institute issued the following statement: “Shortages and rising prices simply cannot be blustered away with rhetoric about migrants. It’s reprehensible and wrong to claim that migrants make us poorer. There is no evidence that immigration lowers living standards for native workers. This dogwhistle shows that this Government doesn’t care about pursuing evidence-based policies.”
FACT CHECK RATING:
Zero. A masterly misuse of the ONS data.
Why are you making commenting on The National only available to subscribers?
We know there are thousands of National readers who want to debate, argue and go back and forth in the comments section of our stories. We’ve got the most informed readers in Scotland, asking each other the big questions about the future of our country.
Unfortunately, though, these important debates are being spoiled by a vocal minority of trolls who aren’t really interested in the issues, try to derail the conversations, register under fake names, and post vile abuse.
So that’s why we’ve decided to make the ability to comment only available to our paying subscribers. That way, all the trolls who post abuse on our website will have to pay if they want to join the debate – and risk a permanent ban from the account that they subscribe with.
The conversation will go back to what it should be about – people who care passionately about the issues, but disagree constructively on what we should do about them. Let’s get that debate started!
Callum Baird, Editor of The National
Comments: Our rules
We want our comments to be a lively and valuable part of our community - a place where readers can debate and engage with the most important local issues. The ability to comment on our stories is a privilege, not a right, however, and that privilege may be withdrawn if it is abused or misused.
Please report any comments that break our rules.
Read the rules hereLast Updated:
Report this comment Cancel