Welcome to the Public Works blog.

Public Works is UNISON Scotland's campaign for jobs, services, fair taxation and the Living Wage. This blog will provide news and analysis on the delivery of public services in Scotland. We welcome comments and if you would like to contribute to this blog, please contact Dave Watson d.watson@unison.co.uk. For other information on what's happening in UNISON Scotland please visit our website.

Monday, 25 November 2013

Bonus culture short changes investment and pay

A key feature of UNISON’s case for fair pay is the wider economic benefit. We have highlighted the shift from wages into profits that reduce demand in the economy and are a large cause of the slow recovery from recession. We also argue that the rich spend less of their additional income, whereas low paid workers spend more in the local economy.

Duncan Weldon at the TUC has usefully summarised a range of evidence supporting this view from recent economic blogs. One paragraph from the Flip Chart Fairy Tales blog concisely makes the key historical point:

the corporate executives of the early postwar world paid their workers high wages. This increased demand and fuelled growth but also meant that companies needed to invest. After the 1980s, executives began to take a much greater share of wealth out of their companies. They then lent it, through the burgeoning financial services industry, to their now much lower paid workers. The debt based consumption filled the gap left by the wage-based consumption of earlier years. Or, at least, it used to. What started in the 1980s as an assertion of management’s right to manage and a repudiation of the collectivist corporatism of the 1970s has resulted in a wealth imbalance that may have disastrous and long-lasting economic consequences.”

Charts in this blog show how investment has declined as well as wages on the altar of profit. This is important because many on the right argue that profit is necessary to fund investment.

This means that the way executives are rewarded, with huge bonuses linked to share prices, has encouraged short-termism and the extraction of large profits at the expense of investment. At the same time, the weakening of unions and worker bargaining power has enabled them to get away with it and has created a market for rising credit. Executive reward and corporate behaviour has therefore been a major factor leading to an economic stagnation that may last for years.

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