The assault on living standards

By Mark Buckley

The government and its allies have launched a huge attack on living standards, accompanied by a major propaganda offensive that wages are rising sharply. The only way such a two-pronged class assault can be accomplished is if the onslaught is not resisted and if the propaganda is not challenged.

In addition to exposing these attacks, a Marxist analysis of the conditions that actually determine wages will show how false these government-sponsored claims are, and why they are so desperate to make them.

Seek truth from facts

The facts are relatively straight forward. The latest pay settlements are averaging about 2%, according to the professional service outfits who monitor wages. At the same time, the official estimates of retail price inflation are that prices are rising by 6%.  This represents an unusually large fall in real wages. It is normally associated with deep recession but this is at a time when the British economy is temporarily expanding in a post-lockdown bounce.

Low wage growth is only part of the decline in living standards. As noted, prices are also rising sharply. In addition, taxes have increased for the bulk of the working population. This is in the form of both freezing income tax thresholds (which means a larger part of any pay increase is clawed back in taxes) as well as rising National Insurance contributions (which are a form of tax that the highest earners are mainly exempt from). According to the Office for Budget Responsibility this means that overall living standard will continue to fall until 2024. They will not recover for years to come, even on the rosy OBR forecasts.

Propaganda around higher pay

The propaganda charge on claiming that pay is rising was led by the liar in chief, Boris Johnson. He argued that wages were soaring and that this was his key policy aim. In fact all that has happened is that wages are higher now than furlough pay, and that lower-paid workers in hospitality and accommodation have borne the brunt of job losses which pushes up the average for those still in work. 

The FT weighed in with a piece headlined ‘UK labour shortages drive up wages’, accompanied solely by a chart showing only that there is ‘bunching’ of wages around the minimum wage level. Nothing on higher wages at all.

The same is true of the BBC, which ran a piece ‘Workers call the shots as job vacancies boom’, with an assertion that employers had to increase pay and benefits to attract workers. The genuine anecdotes were instead about labour shortages. None of them offered evidence of higher average pay, because there is none.

The liberal press is in disarray, reporting both that we have begun ‘the biggest wage squeeze in history’ and that austerity is over.

The propaganda offensive on this issue should be seen like the efforts to promote racism, Islamophobia and other completely reactionary divide-and-rule tactics currently. Individual workers may experience their own fall in living standards, but then hear or read that wages generally are rising, and may have no way of seeing through the propaganda. Politically and economically the effect is to atomise workers.

Of course, the role of the labour movement including Labour leaders but most especially trade union leaders can be to dispel these myths, call out the government nonsense and reinvigorate workers with a collective sense of injustice, as they are once more made to pay for a crisis they did not create. However, in far too many instances trade union leaders have been silent, or even repeated this nonsense.

The myth of ‘supply and demand’

In mainstream economics the first myth taught is that prices are set by supply and demand. As mass starvation and hunger in the world demonstrates, there is a great demand for food globally. But across the richest countries in the world, in north America and in Europe (including Britain), farmers are paid not to grow food, in order to keep prices and profits high.

The myth that the balance of supply and demand sets the price of labour (wages) is being applied in the current situation. The argument is that there are huge labour shortages (job vaccines are at record levels) and that this is leading to higher pay. Only the first of those statements is correct, as shown above.

It is necessary to examine how this labour shortage has arisen.  The latest official data show that there are 1,172,000 job vacancies in the British economy, almost 400,000 more than when the pandemic began.  But there is no boom in job-creation, as the same report shows there are still 550,000 fewer people in jobs than before the pandemic. Higher vacancies and lower numbers in work are explained by approximately 900,000 dropping out of the workforce altogether.

This is a phenomenon now seen in many advanced capitalist economies, exacerbated here by Brexit.  Workers have taken early retirement, or emigrated, or been unable to enter the workforce. This is because either pay is too low (as in 80% furlough pay) or conditions too poor (fire and rehire, the sharp growth in zero hours, and so on). 

Far from labour shortages leading to higher pay currently, it is lower pay and conditions which have led to labour shortages.

Marx on wages

Marx addressed this point on supply and demand explicitly, in a brilliant exposition of the problem in Wage Labour and Capital. He argued firstly that there were three distinct but related arenas for the operation of the forces of supply and demand on setting wages; the competition between producers, the competition between workers and the competition between the buyers and sellers of labour, firms and workers.

Using this insight, the level of competition among the capitalists and among the workers can be set by the interventions of the government, and they have been. In addition to the factors already mentioned such as fire and rehire, cutting wages to 80% in furlough, the growth of zero hours working there has also been a growth in unpaid working, working in former travelling time, erosion of health and safety at work and so on. On the other side there has also been huge financial support for businesses, tax breaks, loans and so on.

The net effect has been to reduce competition between the capitalists, and certainly to reduce their competition for labour in the form of higher wages and better conditions. At the same the repeated attacks on workers’ pay and conditions, as well as the surge in unemployment have all increased the level of competition among workers (with the growth of the ‘reserve army of labour’ in Marx’s term).  The net result has been to shift the balance of forces decisively against workers and in favour of capitalists.

And this is Marx’s fundamental point on setting the level of wages. Within outer bounds (generally not allowing workers to starve at the lower bound and not letting their wages go so high that profit goes to zero or below at the upper bound) the level of wages is set by the struggle between classes for their share of the value produced by the workers.

It is the class struggle that determines wages. The government has intervened decisively on one side. It is resistance to this that the propagandists of higher wages are trying to prevent.