Raising our sights as well as raising pay

Sometimes the old ones are the best. When a senior manager at Ford was showing off a new automated production line to Walter Reuther, leader of the United Automobile Workers union, in the early 1950s, he asked: “Walter, how are you going to get these machines to pay their union dues?” To which Reuther replied: “How will you get them to buy your cars?”

As an economic policy and commercial strategy for a developed country low pay is pretty much a disaster. Demand is flattened. Motivation levels sink. In the late 1990s, when Adair Turner was leading the CBI, he used to argue that Britain needed to build a better skilled workforce that did more valuable work and, yes, got paid more. Post-war economic success in (West) Germany was supported by strong domestic demand for German companies’ goods and services, generated by citizens who were paid well. Without decent pay shoppers can’t shop and businesses can’t sell. When pay is low, and rising slower than prices, economic growth is limited, and general well-being undermined.

During half-term I took my children to the local Odeon cinema. It was as grim an experience as I’d feared it would be – and not just because we had gone to see Cloudy With A Chance Of Meatballs 2. The staff were stretched, bored and miserable. A quick internet search reveals that many employees there are on the national minimum wage. They will have to put in a lot of hours to earn the money they need, and even then it will barely cover their living expenses. Of course, for the punter it wasn’t cheap at all – £24 for the three of us before the inevitable raid on the popcorn and sweets and so on. (I blame the responsible parent, who in this case was me.) This was a classic example of what the commentator Umair Haque would call “thin value” – rip-off prices, a poor experience for customers, a horrible one for staff. To coin a phrase, Britain can do better than this. (Odeon is, incidentally, owned by the private equity group Terra Firma, which is said to be looking to sell the business. Not a very happy story all round.)

Labour’s proposal to offer tax breaks to employers who raise their pay levels to reach to reach the living wage is a move in the right direction. It is not a compulsory measure, nor is it an attempt to raise the national minimum wage to living wage levels in one go. But it is an acknowledgement that persistent low pay is not working, for employees or employers. It is undermining economic recovery. It is adding to the benefits bill.

This move should not come as a complete surprise. At the TUC in Bournemouth two months ago Ed Miliband spoke enthusiastically about the 1945 Labour government, which had not lowered its sights in the face of difficulty. “It raised its sights,” Miliband repeated, with feeling. Encouraging at least some employers to pay more is part of that raising of sights that Miliband wishes to see. It is a challenge to business and the public sector to do better. It is also, of course, a practical example of what “predistribution” might look like.

It may not work. The CBI of 2013 does not speak quite as positively about higher wages as the CBI of 1997 did. While supporting the voluntary nature of the proposals, the employers organisation argued that many businesses simply couldn’t afford to pay any more at all. Similar arguments were made in the mid 90s as Labour campaigned for a national minimum wage: it was an impossibility, a jobs destroyer, economic madness. The Low Pay Commission carefully introduced the NMW on an agreed basis – in a growing economy – with no destruction of jobs. Labour is right to move steadily and cautiously on pay again. But the direction in which they are moving is the correct one.

There are no quick wins or easy fixes on pay. It may take only 90 minutes to fly to Germany, but “getting to Germany” in the socio-economic sense is the work of a generation, or two. If employers say they want to attract and retain good, motivated staff shouldn’t they at least consider the possibility of paying more? Wouldn’t that investment in employees help to produce better results and ultimately greater profitability? Some good employers already lead by example. Others may – slowly – follow. You have to start somewhere.

And this is a good start.