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How soaring inequality fuelled the crash

Guest post by Stewart Lansley


The other case against inequality

Editor's note: Richard Wilkinson and Kate Pickett's groundbreaking and influential Spirit Level has been attacked by both the TaxPayers' Alliance and Policy Exchange recently.The authors have put up a comprehensive defence and you can read the details and follow the debate at the Equality Trust website.

But a second case against inequality has gained ground in recent years, highlighting its role in the financial crisis. Analysts who've made this link include Graham Turner in The Credit Crunch, Paul Mason in Meltdown, Gerald Holtham in Prospect, and Tim Lankester in World Economics. The latest addition is former IMF chief economist Raghuram Rajan's Fault Lines, whose arguments were explored by Aditya Chakrabortty in last week's Guardian.

One of the most compelling and succinct summaries of the arguments we've seen recently appeared in the print version of the journal Soundings, and we're grateful to the author, Stewart Lansley, for allowing us to publish it here online. The rest of the current issue of Soundings is highly recommended too – notably Danny Dorling's "The return to elitism in education" – so do check out the Soundings website for more details.

Despite a series of ‘stop-go’ crises between the Second World War and the early 1970s, the UK experienced only one very shallow and short-lived recession in this period – in 1961. In that year output fell by 0.2 per cent over two quarters.1 Since then, the UK has suffered four much deeper recessions – in 1973-4, 1980-1, 1990-1 and 2008-9. With the exception of 1991 each of these has become successively more severe. In 2008-9 output fell by close to 6 per cent.

A similar pattern applies to the world economy. The last two decades have seen a series of global financial crises – the Latin American and Asian crises of the 1990s, the dot-com bubble at the turn of the millennium and then the global credit crunch which triggered the latest global meltdown.

A comparison between the post-war decades and the post-1980 period shows the former to have enjoyed higher and more sustained growth, less unemployment and lower inequality.2 The success of the post-war decades is down to the exceptional circumstances of the time - sustained post-war reconstruction along with new international co-operation and global economic stimuli - which helped create the long boom.

The period since the end of the long boom has been characterised by a very different set of factors – the rise of globalisation, the freeing up of domestic and global markets and the emergence of the new global super-rich. Each of these factors has been fuelled by the wider shift in economic philosophy from one of managed global capitalism to what has become known as the ‘Washington consensus’ – the belief in efficient and self-regulating markets.

The theory of regulating markets emerged out of the eventual stalling of the post-war boom and the arrival of stagflation in the 1970s – the combination of rising inflation and unemployment. It ushered in the subsequent era of privatisation, deregulation of financial and labour markets, balanced budgets and inflation-targeting.

At the heart of this theory was the idea that if wages and prices were completely flexible, resources would be fully employed. But instead of the steady growth, greater stability and full employment promised by the theory’s advocates, the global economy has suffered a series of successive shocks that have triggered the greater turbulence and inferior economic record of the post-1980 decades.

One of the key effects of the shift in ideology has been a steady but sharp rise in inequality, especially in the two countries that became most heavily wedded to the new economic theories – the US and the UK. From the early 1980s the central social and economic trends of the previous three decades – falling poverty, reduced inequality and spreading employment and social opportunities – were set on a reverse course. Since the beginning of the 1980s, the proceeds of growth have been much less equally shared than they had been in the post-war era. While poverty and inequality rose sharply in both the UK and the US throughout the 1980s and 1990s, middle income groups were also left increasingly behind in the battle for the spoils of rising prosperity.3 In contrast, the period brought the re-emergence of a domestic and global super-rich class, able to accumulate fortunes at levels not seen since well before the Second World War.

These trends not only ushered in increasingly divided societies, they also proved to be an economic time-bomb. Widening inequality became a key – if largely unrecognised - ingredient in the growing fragility of the economy and played a central role in the build-up to the credit crunch and the subsequent recession.

How the ‘profits squeeze’ gave way to the ‘wage squeeze’

Figure 1 shows that, while the share of UK national output taken in wages held its post-war level at between 58-60 per cent until the early 1970s and then reached a high of 64.5 per cent in 1975, it has drifted steadily downwards since then. In 2008 it stood at 53.2 per cent – close to its post-war low in 1996. As a result, the share of national output being taken up by profits had reached close to a post-war high just before the onset of the recession.

Source: Office for National Statistics

As the ‘profits squeeze’ of the 1970s gave way to the much more sustained ‘wage squeeze’ of the last three decades, real wages in the UK rose much more slowly than productivity. From 1980 to 2007, real wages – rising at 1.6 per cent per annum – fell behind productivity, rising 1.9 per cent pa. Since 2000, the gap – as shown in figure 2 - has opened further with real wages rising by a mere 0.9 per cent per annum while productivity has averaged 1.6 per cent.

Source: Oxford Economics

The declining wage and rising profits share were the product of the new macro-economic priorities, the deregulation of the financial services industry, the boosting of market forces and the steady erosion in the power of labour from the late 1970s that were the practical outcome of the new market philosophy. These were reinforced by a new emphasis on flexible labour markets (with the paring back of employment protection rights); increasing constraints on collective bargaining and a growing emphasis on cost-cutting in the pursuit of shareholder value. They were fuelled (though not caused) by a reduction in the demand for unskilled labour resulting from technical change and the global transfer of jobs triggered by globalisation, factors that have added to the growing bargaining advantage of employers.4

Rising wage inequality

The wage squeeze has been compounded in its impact by another long term economic trend: the increasing concentration of earnings at the top. As a result, the falling wage share has not been evenly distributed across the earnings range but has been borne almost entirely by middle and lower paid employees. Thus the bottom 60 per cent of earners has faced a shrinking share of a diminishing pool.

Figure 3 shows the index for the rise in earnings (for full time males) for the 10th percentile, the median and the 90th percentile from 1978 to 2008 (1978 = 100). The figures have been adjusted for inflation. While real earnings at the 90th percentile doubled over the three decades, real median earnings were 56 per cent higher and real earnings at the 10th percentile only 27 per cent higher. The earnings structure has thus become increasingly skewed towards the top end, with the gap widening sharply between the middle and the top.

Source: Author’s calculations from Annual Survey of Hours and Earnings (for 1997-2008), and New Earnings Survey (for 1978 to 1996). The earnings figures have been adjusted for changes in the retail price index.(The NES covers GB and ASHE covers the UK.)

This rise in earnings inequality over the last 30 years – with most of the rise taking place from the early 1980s to the mid-1990s - has been driven first by dramatic shifts in the structure of the workforce. The number of jobs in manufacturing fell from 7,130,000 in 1978 to 3,154,000 in the first quarter of 2008. In contrast the number of jobs in finance and business services rose from 2,795,000 in 1978 to 6,669,000 at the beginning of 2008.5

These changing patterns have brought a significant rise in the number of people working in well-paid professional and managerial jobs; a decline in the number of middle-skill jobs requiring moderate levels of education and paying moderate salaries; and a rise in the number of routine low paid jobs. In the 12 years from 1997 to 2009 alone, the proportion of the working population employed in managerial and professional occupations rose from 34.7 per cent of the employed population to 43.5 per cent, while the proportion working as plant and machine operatives fell from 9.8 per cent to 6.6 per cent.6 This has led to a steady polarisation of the jobs market with the emergence of the ‘hollowing out of the middle ’ - the steady loss of jobs once paying middle levels of pay.7

A second factor has been a sharp increase in earnings relativities between jobs. Earnings in high paying jobs have been creeping up over time more quickly than those in middle and low paying jobs. The most high profile examples are those at the very top with very sharp rises in the pay of financiers, bankers and company executives (roughly the top 0.1 per cent). Over the last decade, for example, remuneration packages for the chief executives of FTSE100 companies have risen nine times faster than those of the median earner.8 In fact, the wage share would have fallen even more sharply if allowance was made for the rise in the share of the very top earners including company executives and chief executives. As the late Andrew Glyn has argued, these are ‘really part of profit incomes masquerading as wages’.9

But growing pay inequality is not just a product of runaway pay amongst a few thousand top executives and financiers. The best paid employees in September 2009 were those working for City-based firms. The average pay at money broker ICAP, which employs 4,330 staff, was more than £200,000. Average pay amongst the 1776 staff at hedge fund group Man was £198,000. This was the double the average of five years earlier.10

Earnings amongst those working in well paid white collar professions outside of the corporate super-elite and City financiers have also been rising faster than non-professional salaries. Winners include corporate lawyers, accountants, medical practitioners, senior civil servants and top local government officials. All these jobs command salaries that are much higher in relation to the median than their counterparts 30 years ago.11

While those in the best paid jobs in the late 1970s have ended up in the fast lane of subsequent earnings growth, those in the then bottom half of the earnings distribution have mostly have been relegated to the slow lane. Although real living standards in the UK have nearly doubled over the last 30 years, some groups of workers, especially those just above the minimum wage, from fork-lift truck and bus drivers to bakers and low-skilled factory workers, have enjoyed little increase at all in real earnings over the period. Most middle and low income workers have enjoyed only small rises in real wages. Mostly it is only top executives and financiers and the best paid professionals – medics, accountants, lawyers and engineers - who have enjoyed wage rises in excess of wider rises in prosperity.

These trends have been at their strongest in Anglo-Saxon economies. The US has experienced an even steeper fall in the wage share, while even more of the gains from growth have gone to the richest one per cent. Real incomes for the bulk of middle America remained static over the last two decades. The Walton family who own Wal-Mart have a combined wealth in excess of $90bn, roughly equal to that of the poorest third of the US population - some 100 million people.12 The fall in the wage share in Europe has been shallower, while most countries on the continent have experienced a lesser rise in inequality and nothing like the personal wealth boom of the UK and the US.

The new economic imbalance

These trends have had a profound impact on the way the economy functions. In the 1970s, Britain’s economic problems – its inflationary spiral, low investment and weak productivity growth – were exacerbated by the ‘profits squeeze ’ of the time. Yet this squeeze turned out to be temporary, the product of an exceptional set of circumstances including the oil price shock and the near-peak of the power of the trade union movement.

Today the imbalance of the 1970s has been reversed. Britain has built an economy increasingly dependent on financial services and the spending power of the rich and super-rich and in which the gains from economic growth have gone disproportionately to profits. Moreover, unlike the short lived profits squeeze of the 1970s, the subsequent wage squeeze has proved much more enduring. In the process Britain has been transformed from a relatively high wage, low debt, equal society to a low wage, high debt and much more unequal society.

Within this imbalance, rising inequality has played a central role in the rise of financial turbulence. This is for five main reasons.

First, because of the negative effect of greater inequality on spending power. To maintain rising living standards, ordinary families, faced with a declining wage share, became increasingly indebted. As shown in figure 4, the personal debt/income ratio rose from 91.1 in 1997 to 157.4 in 2007. In 1980 it stood at 45 per cent. It was this borrowing that propped up the sustained boom of the post-millennium years. Moreover because the lending was extended and expanded to groups with few if any tangible assets, the level of default risk in the economy rose along with the fragility of the banking system.

Source: Office for National Statistics

Secondly, this increase in risk was multiplied because rising inequality boosted financial speculation at the top. Some of the swelling profits’ pool funded higher levels of business investment. But it was the shift to profits that drove the personal wealth boom of the last twenty years, a boom which concentrated wealth in fewer and fewer hands. Higher profits were used to justify the explosion of corporate, executive and financial remuneration. They also fuelled the rise in business values and record dividend payments in private companies.

So what did the rich do with their rising wealth portfolios? They went in search of quick profits. In doing so, they aped financial institutions, leveraging their wealth – sometimes by huge amounts - by borrowing. Record returns together with cheap credit encouraged the wealthy to borrow not to finance consumption but to take large speculative bets on assets that offered, at the time, big potential returns. Money poured into hedge funds, private equity, takeovers, commodities, rare art, commercial property and luxury housing. Speculative frenzy created grey markets, and heightened business and asset values. Since returns cannot outstrip the general growth rate of the economy for long, these inflated, but illusory, returns created the multiple bubbles that triggered the credit crunch and the subsequent recession. As the American economist Ravi Batra has written: ‘wealth inequality is a prerequisite for manias and bubbles. The greater the inequity, the bigger the bubble and the more painful its eventual bursting.’ 13

A similar mechanism was at work in the build-up to the great recession with, in the United States, a great surge in the distribution of wealth and in the volume of speculative loans during the 1920s. As Professor Robert Wade of the London School of Economics has pointed out, ‘90 per cent of taxpayers had lower disposable income in 1929 than in 1922 while the top 1 per cent increased their disposable income by 63 per cent and corporate profits rose by 62 per cent... rising profits went into real estate and stock markets. The stock market boomed – until October 1929’.14

The role of inequality in fuelling financial instability has long been recognised. Keynes made it clear that because of the lower marginal propensity to consume of the rich, and their propensity for speculation, wealth inequality increases the risk of financial instability and economic collapse. In his book, The Great Crash, 1929, JK Galbraith identified ‘the bad distribution of income’ and its impact on the pattern of demand as the first of five factors causing the crash and the great depression. ‘The rich cannot buy great quantities of bread. If they are to dispose of what they receive, it must be on luxuries or by way of investment in new plants and new projects. Both investment and luxury spending are subject, inevitably, to more erratic influences and to wider fluctuations than the bread and rent outlays of the $25-week workman.’ 15 It is no accident that the reduced inequalities of the post-war decades coincided with sustained growth and a much more subdued economic cycle.

The global distribution of wealth today is almost as uneven as it was in the 1920s. And its speculative element and impact has been accentuated by both greater leveraging and the rise of an avalanche of footloose capital owned by the world’s nomadic super-rich. The combined wealth of the world’s richest 1000 people is almost twice as much as the world’s poorest 2.5 billion.16

The growing dependency of the global economy on the whims of a small global economic elite has fuelled the volatility arising from domestic concentrations of wealth. The latest round of global financial turbulence - the third in the last decade - adds weight to those such as Batra who have argued that the maldistribution of wealth has been associated with all the great speculative financial manias. Indeed the history of economic bubbles suggests that there is a natural economic limit to the degree of inequality that is sustainable, and that once that limit is reached, economies implode. The current recession is just the latest example of the limit arising from the relationship between extreme inequalities and macro destabilisation.

Rising inequality has fuelled instability through a third route – the encouragement of non-productive activity. How much of the financial merry-go-round of the last decade has strengthened Britain’s real economic base or helped create sustainable businesses and jobs is questionable. Much of it has transferred wealth from one group in society to another. The private sector has had a relatively mixed record when it comes to long term job creation over the last decade.17 Much of the expansion in the activity of investment banks has been less about ‘risk-reduction’ than ‘risk-passing’.18 The evidence is that although the financialisation of the economy has contributed in some ways to wealth creation, its main function has been about the diversion (or in some cases the destruction) of existing wealth.19

The fourth way high levels of inequality fuel instability is via shifts in the global and domestic power nexus. Over the last three decades, the rise of the global financial elite has shifted power from nations to a small coterie of individuals and corporations. This new concentration of power blinded politicians to the impact of economic financialisation. Awe-struck political leaders stood on the sidelines as the new wealthy elite ensured what Citigroup global strategist Ajay Kapur has called ‘favourable treatment by market-friendly governments’.20 Over the last decade this elite has used its growing political muscle to guarantee weak financial regulation by the state and lower taxes on the wealthy. According to Simon Johnson, former chief economist at the IMF, a dominant ‘financial oligarchy’

played a central role in creating the crisis, making ever-larger gambles… until the inevitable collapse. More alarming, they are now using their influence to prevent precisely the sorts of reforms that are needed, and fast, to pull the economy out of its nosedive. The government seems helpless, or unwilling, to act against them.21

Finally, the concentration on finance capital created by the overreaching ‘financial oligarchy’ has been to the detriment of other parts of the economy including small businesses, advanced manufacturing and parts of the regions. Consultants Ernst & Young claim that finance has become ‘the cuckoo in the nest’, crowding out industries that would otherwise have flourished. The City has sucked in the pick of Britain’s brightest mathematicians and physicists while the Governor of the Bank of England has warned of the way City salaries distort the economy by skewing the pattern of rewards for talent.22 The flow of domestic and international money into the City, encouraged by the state, also kept the pound at unsustainable levels, making manufacturing – now a mere 12 per cent of national output – increasingly uncompetitive.

With rates of return on financial engineering exceeding those in other parts of the economy including new businesses and manufacturing, funding for long term success gave way to short-term, fast-buck deal-making. It was these rising returns that encouraged the much higher levels of leveraging and risk-taking in financial institutions. Increasingly Britain’s home-grown super-rich became drawn from financiers rather than traditional entrepreneurs. According to the Sunday Times, 16 per cent of the richest 1000 in 2009 obtained their wealth from hedge funds, financial speculation, private equity and other financial activity. A mere 11 per cent made zheir money from industry and engineering and 4 per cent in construction and housebuilding.

Rebalancing the economy

In the last 25 years, the UK’s wider economic strategy has been built around a combination of historically low average real wages, a concentration of earnings at the top and a growing burden of private debt. Supported by an adherence to ‘light regulation’, the strategy brought a short term surge in growth and prosperity.

Despite the earlier warning signs, it has taken a deeply damaging recession to expose the reality of the market-driven policies arising from the Washington consensus. The debt binge on which the economy came to depend was never sustainable. Britain has also become much too reliant on rampant finance capitalism. According to the National Audit Office, bailing out the banking sector has cost £850bn, while the recession has blown a near-record peacetime hole in the UK’s public finances. Andrew Haldane, executive director at the Bank of England, has shown how bank assets – loans, financial derivates and credit advances – have soared from around 100 per cent of GDP in the late 1970s to five times output today. That is proportionately higher than any other country bar Switzerland and Iceland.

The fault lines of Britain’s low wage, high debt, finance-dependent economy are now only too evident. The ‘wage squeeze’ and the growing gap between the top and the middle and the bottom contributed to the factors that led to the meltdown. Real wages were not growing fast enough to underpin final and stable demand without excessive borrowing by earners. By fuelling borrowing by households with a limited or zero asset base and encouraging rampant financial speculation, rising inequality brought unprecedented asset bubbles alongside an increasingly fragile banking system.

A growing number of leading economists have warned of the impact of the low wage model. In 2006, the Nobel Laureate Robert Solow claimed that an economy that doesn’t distribute its gain more widely is ‘poorly performing’. In the same year Ben Bernanke, Chairman of the US Federal Reserve, said that corporations should ‘use some of those [ higher ] profit margins to meet demands for higher wages from workers.23 In 2007 Germany’s finance minister called on European companies to ‘give workers a fairer share of their soaring profits’.24

In 2009, Tim Lankester, President of Corpus Christi College, Oxford University, argued that: ‘In capitalism’s last great crisis in the 1970s, the declining share of profits and the rising share of wages and salaries was the fundamental problem. In the latest crisis, the distribution problem – in so far as it contributed to the crisis – has been different: too large a share of national income has gone to high-income earners and not enough to the lower paid.’25

Today the recovery is threatened by the same factors that caused it: a lack of sustainable demand and a persistence of global and national inequality. Today’s most urgent task beyond recovery is a coherent strategy to rebalance the real economy. This means plans which halt and reverse the sliding wage share, reduce the gap between rich and poor, shrink the size of the financial sector and increase the flow of funds into productive and sustainable economic activity. Real living standards should rise in line with productive capacity while rising prosperity should be evenly shared across all groups in society.

Such a strategy would make the economy less dependent on debt for maintaining demand and lower the turbulence of the last 25 years. By lowering the premium available on some forms of financial investment that occurred during the boom years, it would limit the level of financial speculation, moderate the cycle of asset prices, reduce the degree of economic volatility and divert resources into more sustainable parts of the economy. Without such a strategy, the greater turbulence of the last three decades is set to continue, while recessions may become increasingly regular and deeper still.

This article first appeared in the Spring 2010 issue of Soundings. The author would like to thank Richard Exell, Andrew Goodwin, Ronald Janssen, Adam Lent, Richard Murphy, Jean-Christophe Paris, Howard Reed and Steve Schifferes for helpful comments on an earlier draft.

• Stewart Lansley is author of Rich Britain (Politico’s 2006) and Unfair to Middling (TUC Touchstone Report 2009), and co-author of Londongrad: From Russia With Cash, The Inside Story of the Oligarchs (4th Estate 2009).


1. This is based on Quarterly GDP at market prices (ONS series YBEZ)

2. R Skidelsky, Keynes: The Return of the Master, Allen Lane, 2009 p 126-7

3. S Lansley, Life in the Middle, TUC Touchstone Pamphlet, 2009

4. see eg ‘The Globalisation of Labour’, World Economic Report, IMF, 2007

4. ONS workforce jobs by industry:; there was also a rise in the size of the workforce over the period.

6. ONS, Labour Force Surveys, first quarter 1997 and 2009

7. Lansley op cit, section 4

9. A Glyn, G-24 Policy Brief, No 4, 2006

10. J Finch & S Bowers, Guardian, 14 September, 2009

11. Lansley op cit, table 1 p 13

12. T Judt, New York Review of Books, 6 December, 2007

13. R Batra, The Great Depression of 1990, Dell, 1988 p 138

14. Ibid

15. JK Galbraith, The Great Crash, Penguin, 1992, p 194-5.

16. D Rothkopf, Superclass, Little Brown, 2008 p xv

18. S Lansley, Do The Super-Rich Matter?, TUC Touchstone Pamphlet, 2008,, section 4

19. See, for example, Augar, The Greed Merchants, p 84

20. Ajay Kapur et al, ‘The Global Investigator: Plutonomy: Buying Luxury, Explaining Global Imbalances’, Citigroup Equity Research, October 14, 2005

21. S Johnson, ‘The Quiet Coup’, The Atlantic, May 2009

22. IFSL, Banking 2008, March 2008, chart 25

23. New York Times, 20 July 2006

24. Financial Times, 28 February 2007

25. Tim Lankaster, ‘The Banking Crisis and Inequality’, World Economics, Vol 10, No 1, Jan-March 2009

Posted by Other TPA at 04:15pm on 11 August 2010
Tags: Economy,Inequality

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Excellent article.

Watch Capitalism Hits the Fan

The following quote is from

With breathtaking clarity, renowned University of Massachusetts Economics Professor Richard Wolff breaks down the root causes of today’s economic crisis, showing how it was decades in the making and in fact reflects seismic failures within the structures of American-style capitalism itself. Wolff traces the source of the economic crisis to the 1970s, when wages began to stagnate and American workers were forced into a dysfunctional spiral of borrowing and debt that ultimately exploded in the mortgage meltdown. By placing the crisis within this larger historical and systemic frame, Wolff argues convincingly that the proposed government ìbailouts,î stimulus packages, and calls for increased market regulation will not be enough to address the real causes of the crisis - in the end suggesting that far more fundamental change will be necessary to avoid future catastrophes. Richly illustrated with motion graphics and charts, this is a superb introduction designed to help ordinary citizens understand, and react to, the unraveling economic crisis.
The video seems to be online at

A must read is - From Marx to Goldman Sachs: The Fictions of Fictitious Capital by Michael Hudson. President of The Institute for the Study of Long-Term Economic Trends (ISLET), a Wall Street Financial Analyst, Distinguished Research Professor of Economics at the University of Missouri, Kansas City at

Posted by Paul Sweet at 03:10pm on 12 August 2010

hmm who was in power for the last 13 years???
Who made share ownership (i.e. taking a bigger slice of the profits) popular? Tories
Who took 100 Billion plus out of the pension scheme (and helped create a pension black hole) - Gordon Brown.
Says it all really

Posted by still waters at 10:18am on 29 August 2010

Allowing that all the facts and figures in this article are correct I would add only one other; that, smoothing annual growth figures, the UK and the US economy continue to expand.

The dysfunctional share of corporate revenues - if that is what we are experiencing - isn’t typified by a group or class expropriating a growing percentage of a static or shrinking pot. Quite the reverse. The distribution unfairness described relates to a steadily if occasionally interrupted growth in national earnings or GDP.

What we are seeing in my opinion is not the outcome of a grasping elite seizing an ever greater hold of the economy; it is the effect of technology.

A worker can control vast funds from their home office with a personal computer and a couple of phone lines. A media producer - film, music, written word etc - can similarly make huge fortunes with a tiny supporting infrastructure. Factories can be totally flexible, totally productive and anywhere, controlled, again, by a very small workforce supported by a few computers and some telephony.

Louis Bacon, Bill Gates, Steve Jobs, Warren Buffet, Larry Ellison, Steven Spielberg, Paul McCartney, Andrew Lloyd Webber, J K Rowling and so on have made enormous fortunes not by founding huge enterprises on Carnegie or Ford lines, but with a few pencils, some paper or a laptop, a phone and very few people.

I believe this is what we are seeing; the adoption of technology and its application to commerce will inevitably drive out the lower value components of the labour market, one level at a time.

I think if it could be measured it would be seen that individual wages have more than kept pace with profits. It’s just that unemployment in all its forms, has risen faster.

I regret that this trend is probably irreversible. In the years to come only the cleverest, most talented will enjoy productive employment. The rest of society will languish on benefits, in non-jobs or on inherited wealth.

Whether such a society can survive will prove to be one of the most testing problems for politician to wrestle with.

Posted by Brian Smith at 04:20pm on 5 September 2010

Brian Smith, this is the problem - unemployment will rise and rise if a smaller and smaller group of the population as you put it the “cleverest, most talented…” (or luckiest or wealthiest) draw the bulk of wages and wealth towards them.  “The rest of society will languish on benefits” -perhaps the “rest of society” will not put up with this elitist approach forever. Amongst other nonsensical reforms of both the Labour and ConDem governments -the raising of the retirement age is the most foolish. Fewer and fewer jobs and more and more people over 60 in the job queue? Doesn’t make sense does it?

Posted by bill major at 05:32pm on 15 September 2010

The employment rate (of labour) is determined by its cost relative to the profit it produces. Government policy can do very little if anything at all to alter this fundamental reality.

Young people know less than old people so should come with a lower cost. They have more energy, flexibility and adaptability so should be more productive (profitable) than an old person.

If you really truly want less youth unemployment or more young persons in work then the answer is very straightforward; lower the cost of employing them.

A young person who comes with a lower employment cost will out-compete an older person in the job market every time.

So do away with national pay scales/wage rates, reduce or abandon the minimum wage and attach a lower NIC rate to those under 25. But then do you honestly, really want lower youth unemployment?

The Labour party had 13 years to do these very simple things but (George Brown) instead preferred to destroy the pension schemes of millions of older workers to fund a different answer to the problem which, of course, failed abysmally.

Politics is a murky business and comes with a heavy price.

Posted by Brian Smith at 10:20pm on 15 September 2010

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