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  • April 3, 2018
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Falling wages caused more by trade union decline than robots

Globalisation also saw employees' pay suffer in 14 OECD countries

Are lacklustre wages an inevitable consequence of globalisation and technological change? Or has policy had a role to play?

Technology, according to new research presented at the annual conference of the UK’s Royal Economic Society, is not in itself the problem. Instead, a mix of globalisation and the decline of worker bargaining power have been responsible for employees’ woes. And, the paper suggests, bolstering trade unions would be a better way to shore up workers in the future than skills training.

The paper, authored by Alexander Guschanski and Özlem Onaran from the University of Greenwich in London, laid out estimates of the share of wages in GDP for workers in high- and low-skilled jobs, and those within manufacturing and service industries, from 1970-2014 in 14 OECD countries.

The wage share is a common metric which looks at how much of a country’s economy is made up by compensation of employees, rather than other elements like profits or dividends.

Overall, the study found, workers across 74% of sectors suffered a drop in wage share between 1980 and 2007, and 64% saw a fall of more than 3 percentage points. The trend was strongest and most consistent across countries in service sectors like postal and telecommunications, electricity, gas and water supply and retail trade, as well as manufacturing sectors.

The writers looked at how three factors — technological change, the process of globalisation, and shifts in worker bargaining power — influenced the slump in wage share. “Our results indicate that the decline… can be attributed to globalisation and a decline in bargaining power of labour,” Guschanski and Onaran wrote.

The pair said that the influence of new technology was much less noticeable. “While we also find evidence for a negative impact of technological change,” they said, “the effect seems to be less significant since the mid-1990s.”

To study the impact of trade unions, the paper looked at the impact of union density — the proportion of all employees in a country who are in a union — on the wage share.

They found that technological improvements to the process of production had not benefited workers as much as they might otherwise have, thanks to the decline in trade union power.

“This decline is related to a strong deterioration in union density and minimum wages, welfare state retrenchment, and the overall rise in inequality,” they wrote, “tackling income inequality requires a restructuring of the institutional framework in which bargaining takes place and a level playing field where the bargaining power of labour is more in balance with that of capital,” they concluded.

The pair pointed out that middle-skilled workers they studied had suffered worst from the impact of technological change, meaning that responding to new technology simply by boosting skills training, rather than bolstering unions, might not help in the long term.

Within the wider issue of globalisation, the authors looked at both “offshoring” — the movement of business from one country to another — and migration.

They found that the movement of people had very little effect on wages. “Theory suggests that the effect should be strongest for low-skilled workers who will suffer the most from wage competition by foreign employees,” they wrote, but “we obtain no statistically significant effect for either the total wage share or workers of different skill levels.” Meanwhile, they wrote that offshoring had a negative effect on wage share for all groups.

(Picture Credit: Related Fluid Power)

Josh Lowe


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