According to new research published by the Public and Commercial Services Union (PCS) more than £50 billion has been lost from the economy in reduced wages. This staggering figure gives a new outlook on the recent trend in the official unemployment figures in Britain. While the economy contracted in the final quarter of 2012, unemployment fell – a seemingly contradictory set of figures.
But according to the PCS research, when the cut in wages is factored in, it can be explained. The effect of reducing wages is taking more money out of circulation in the economy without a massive surge in unemployment. Recent figures on under-employment would also back up this analysis – with more and more workers struggling to get by on scraps of work.
When inflation – using the governments preferred version, the Consumer Price Index (CPI) – is considered, the real value of pay for workers in Britain and the North has actually fallen by 7% since the start of 2008. CPI in fact is not an accurate barometer for prices for workers – it includes luxurious items etc. A more accurate method for measuring inflation for workers, in particular low paid workers, is the Retail Price Index which is consistently far higher than CPI. So for most workers, wages have actually fallen by more than 7% since 2008.
On the basis of current pay policy (including increased pension contributions), it is expected that public sector pay in real terms will fall by £7billion by 2015. The Tories and Liberal Democrats will argue that the deficit requires cuts and that government borrowing is unsustainable, but the effect of austerity and cutting wages is actually leading to greater borrowing. When the Tories and Lib Dems came to power in 2010, the national debt was £811billion – 55.3% of GDP. By December 2012, it had risen to £1.1 trillion – 70.7% of GDP! Austerity is actually causing higher debt, economic contraction and a higher deficit. That shows that workers are right to demand real pay rises.