Really excellent article on wage compression:

 Good for micro and macro - distil to its core idea and you have a snappy sentence about unintended consequences. Not for the faint-hearted...

Britain’s big squeeze: middle-class and minimum-wage 

The strange politics of wage compression 

Illustration: Nate Kitch

Nov 13th 2024

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For young high-flyers with an interest in marine conservation, it is the perfect gig. A charity is hunting for eager graduates (with at least a high upper-second degree and excellent A-level results, naturally) to work full time as a guardian of the ocean. At £25,300 ($32,110), the annual pay is typical for a graduate role. Come April next year, it will also be near the minimum wage.

Graduate schemes with a minimum-wage salary will become only more common after Rachel Reeves, the chancellor, cranked up the statutory minimum in the budget last month. A rise of 6.7%, to £12.21 an hour, will kick in next spring. Someone working full time on a minimum wage can expect to earn over £25,000 a year, about as much as a prospective turtle-botherer.

Wage compression—when wages for skilled and unskilled labour begin to merge—has already changed Britain’s labour market. Workers in the middle have struggled; workers at the bottom have, in relative terms, done well. In 1997 a median earner took home almost double the income of someone at the tenth percentile, according to the Resolution Foundation (RF), a think-tank. In 2023 they managed only 50% more. That is largely owing to Britain’s increasingly generous minimum wage, which, at two-thirds of median income, is now one of the highest on the planet.

In an era of stagnant wages for Britain’s middle class, normally precarious professions—bar workers, cleaners and shop-floor staff—have enjoyed a relative bonanza due to government diktat. Median hourly wages for bar workers jumped by 26% in real terms between 2011 and 2023, according to the rf. In contrast, median salaries overall rose by a paltry 1.9%. In a country as class-obsessed as Britain, that raises an unpleasant question: what happens when middle-class jobs attract the same pay as working-class ones?

Many have not yet absorbed how much has changed. A decade of lousy overall wage growth means that some employers, and prospective employees, assume that any five-figure salary starting with the number two is still relatively generous. A junior graphic designer (preferably with a degree and two years’ experience) can expect to earn £22,000, which will soon be below minimum wage. An organiser for a “climate parliament” can command a similar salary, provided they are fluent in English and French.

But those who have clocked the change are often unhappy. Junior doctors, who have been fighting the government over pay for much of the past decade, are the noisiest example. The British Medical Association, their union, has made much of the fact that Pret A Manger employees can earn more than a doctor. For some this was a sign of snobbery (are doctors inherently better people than baristas?). For others it was mere fairness (they are certainly more useful after a car crash). Either way the strategy worked: among Labour’s first actions in office earlier this year was handing doctors a 22% pay rise over two years.

Being middle class and on a minimum wage has specific perils. In a progressive tax system those who earn less, pay less. But when graduates are badly paid, this deal turns to dust. From April the threshold for paying back a student loan (£25,000) and the minimum wage on a full-time job will cross over. The result is that any graduate with a full-time job, whether that be stacking shelves in Tesco or training as a lawyer, will face a de facto marginal tax rate of at least 37%. Britain has developed a bizarre tax system based on age (pensioners are exempt from national-insurance contributions) and education (graduates take home less money). If history shows anything, it is that creating a group of people who are overeducated and overtaxed can lead to funny things.

Should voters begin to gripe about wage compression, it would mark the end of the closest thing to a free lunch there has been in British public policy. The minimum wage is the most successful policy intervention of the past quarter-century, argues Nye Cominetti of the rf. Usually policies have pros and cons. The pros came (wages went up for the hitherto badly paid) but the cons never seemed to arrive (unemployment was barely affected). As a result, successive governments, both Conservative and Labour, jacked up the minimum wage at almost every opportunity, like monkeys in a laboratory hooked up to an opium dispenser.

But the political consequences of wage compression cannot be dodged forever. When Mr Cominetti recently appeared on Radio 5, a broadcaster, to extol the virtues of a higher minimum wage, an angry lorry driver preceded him. “What’s the point in you working extremely hard if you can earn almost the same just doing minimum-wage jobs?” he asked. An alliance of lorry drivers and doctors would be curious but potentially powerful. Pay compression is not popular so much as little-noticed, at least for now. Politicians confuse equality with fairness at their peril.

The world turned upside down

Politics is less about where people are in the pecking order than where they think they should be. Graduates who work in non-graduate roles are more likely to vote for radical-right parties than their peers in graduate jobs, point out Ben Ansell and Jane Gingrich in a useful paper that does away with the idea that degree-holders in the West are a monolithic blob. The “never made it” are as much of a problem as the “left behind”.

Perhaps Britain is happy to be a little more socially democratic. Those in the middle can swallow lower wages in the knowledge that it might make Britain more competitive. They can comfort themselves with the fact that those at the bottom are better off. Maybe their earnings will improve in later life. For many, however, wage compression brings only the realisation that the trappings of a middle-class life—such as a degree, a profession or a job saving turtles—are insufficient compensation for a salary that places them on the lowest rung. That is not where they expected to be. ■

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This article appeared in the Britain section of the print edition under the headline “The big squeeze”

The economics of poverty starts right at the beginning

 

ROBERT COLVILE

A boy of 14 stabbed on a bus — another victim invisible to elites

Something in Britain is broken but a ruling class dominated by the comfortable too often fails to notice

Robert Colvile

Sunday January 12 2025, 12.01am, The Sunday Times

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On Tuesday, Kelyan Bokassa was murdered. Stabbed on the upper deck of the 472 bus, in the middle of the afternoon, as it travelled down Woolwich Church Street in south London. The most striking thing about this awful crime wasn’t the tearful tributes from his mother and teachers. Or the grim details of the 14-year-old’s life that she and others provided: groomed by gangs from the age of six; living on the streets for a year; turning up on her doorstep sick, underweight and tattooed; the time in care; the looming court date for possession of a machete. It wasn’t even that his attackers didn’t bother to cover their faces. It was that they were, reportedly, both teenagers too.

The headlines last week were — thanks to Elon Musk — dominated by the rape gang scandal first exposed by Andrew Norfolk of The Times. An awful lot of people have been asking why the scandal was ignored for so long. And there is a simple answer. Yes, a lot of well-meaning, middle-class people were terrified of being thought to be racist. But even once the scandal was exposed, the victims were largely invisible. It had happened to them, not to us.

It’s the same when it comes to knife crime. In 2022-23, of the 244 people killed by “sharp instruments” 26 per cent were black, more than six times the share of the population. Of those, 40 per cent were under 25, versus 24 per cent for white victims of the same crime. Yet for most of us — at least most of us reading The Sunday Times — gang violence is something done by other people to other people.

Kelyan Bokassa’s story is heartbreaking, but unutterably distant from our day-to-day concerns.

And it’s not just crime. There are all kinds of statistics that show how divided we are as a nation. One in nine schoolchildren in Newham, a borough in east London, are classified as homeless. The richest parents are more than twice as likely to be married as the poorest. There are huge variations in employment rates, levels of family breakdown, even life expectancy.

This isn’t just about pockets of deprivation, but a wider malaise. Fraser Nelson pointed out in a recent Channel 4 documentary that sickness benefit approvals and renewals have now passed 3,000 a day, up threefold since the pandemic. About 3.2 million people are “on the sick” — in particular in places like Birmingham, Glasgow and Manchester, where roughly a fifth of people are on some kind of out-of-work benefit. Welfare dependency, knife crime, antisocial behaviour, derelict high streets — all are concentrated where the middle classes don’t see them.

Sometimes such low-income communities are neglected by politicians: a striking report from the Stonehaven consultancy recently found that all the constituencies that swung to Reform had a “missing” road project, long promised but never built.

But in many cases they find themselves bearing the brunt of politicians’ decisions. Last year the think tank I run, the Centre for Policy Studies, produced a big report on immigration. One of our most striking findings was how disparate the effects have been. There were constituencies, such as East Ham in London, where only 27 per cent of school pupils had English as their first language; and constituencies, such as Workington in Cumbria, where the figure was 98 per cent. There were places where less than 5 per cent of the population had arrived since 2001, and places where the figure was more than a third.

Inevitably, therefore, experiences of migration had been very different. For the rich it meant cheap labour — in shops, on hospital wards, in their homes. For the poor it meant increased competition for jobs and housing, plus an unprecedented transformation in the communities around them.

Indeed, as the writer Ed West pointed out last week, it has always been the poor who have had more reason to be resentful of mass migration — and had their concerns fobbed off. He tells the story of two women from Barking & Dagenham, which went from 81 per cent white British in the 2001 census to 31 per cent 20 years later. They pleaded with their MP, Margaret Hodge, to “live here for two or three weeks and see what it’s like”. She told them she was there “pretty often”, but “times have changed and we have to move on with them”.

Even when we do make policy for the left-behind, it is often laced with the most patronising of assumptions.

In 2016 I visited New Orleans to study its school system. The city was for a long time home to some of America’s poorest people and worst schools — even before Hurricane Katrina wiped large parts of it off the map. Yet after Katrina something extraordinary had happened. New Orleans rebuilt its school system on the same lines as the academy revolution in England — handing power to head teachers and school chains, rather than imposing top-down control. The result was a flourishing of brilliant schools that were unapologetic about demanding the highest standards from the worst off.

At Samuel J Green Charter School — 95 per cent African-American, 95 per cent on free school meals — the walls were plastered with pictures of the first black president, the first black senator and so on. Even the year groups were named after the date the kids would graduate from university — historically a foreign concept. City-wide, standards soared and failure plummeted.

It may seem a long way from charter schools in Louisiana to a stabbing on the 472. But the education reformers in New Orleans, and their allies in England, shared a sense of moral mission: a belief that high standards, knowledge and discipline shouldn’t just be for the middle classes. That you helped the worst off not by pandering to them, but by giving them the same opportunities, structures and support as their better-off peers.

This is why I was so upset about the last government’s failure to make reversing the scandalous rates of post-Covid truancy a national crusade. And it’s why I’m even more upset about the new government’s education plans. So much of the coverage has been about the taxation of private schools. But far more corrosive, as Michael Gove has argued, is what is being done to free schools and academies, not least via the new schools bill. Reasserting Whitehall control over everything from salaries to school uniforms.

Cancelling funding for new free schools, or for academy chains that want to take over their struggling counterparts. Rewriting the curriculum to make it less challenging and more “diverse”. Taking responsibility for failing schools away from visionary educators and handing it to civil servants. Giving unions everything, and parents nothing.

The murder of Kelyan Bokassa — and the rape gang scandal — show that something in Britain is broken. That a ruling class dominated by the comfortable too often fails to notice the travails of those who are not. How depressing that Labour is sabotaging one of the few programmes that is doing anything to help.

A broad-brush look at migration and data -

 

• Annabel Denham

The full, alarming truth about mass migration is finally being exposed

Robert Jenrick is right – the risks have become so great they should be impossible to ignore

Oli Scarff/Getty

Annabel DenhamColumnist and Deputy Comment Editor

01 October 2024 6:12pm

There are few more inconvenient truths in modern Britain than the failure of mass migration. We wanted to believe the myth, that we could fling open our doors and into the UK would flow migrants from across the globe, transforming our nation into a prosperous melting pot. But wishing it so was not enough, and with each new dataset the economic miracle looks more and more like a mirage.

The Office for Budget Responsibility (OBR) recently showed that a “low-wage migrant” who comes to Britain aged 25 will cost the taxpayer £150,000 net by the time they reach 66, £438,000 by 80, and £1.2 million if they live to 100. That we’ve recently experienced the worst GDP per capita growth since the 1970s suggests immigration does not magically boost living standards. In 2023 net migration totalled 685,000, yet still we are plagued by flatlining productivity, a fiscal squeeze, a ballooning welfare bill and stagnant growth. The Office for National Statistics (ONS) has just revealed GDP per head shrank by 0.3 per cent between April and June compared with a year earlier.

And that’s before you get to what the OBR refers to as “dilution of capital stock”: how the rate of immigration far exceeds the ability of our state to adapt. So we have a decaying NHS, clogged up roads, crumbling infrastructure. And it’ll only get worse: in the 27 years since 1997, net migration added six million people to the country. In the next 13 years, we could easily add half that number again.

But here’s the thing about awkward truths: people will go to great lengths to cover them up. In fact, there’s good evidence this is happening already, with former immigration minister Robert Jenrick warning this week that migrant crime statistics are being hidden from the British public. We cannot have a serious discussion about immigration without the data. Denmark has league tables compiled from government figures showing the crime rates of the top four nations – Kuwait, Tunisia, Lebanon and Somalia – are eight times those of Danish nationals. We have a ruling class who are either too incompetent, or too reluctant, to tell the people paying for this political project what it’s really costing. What we do know is that 12 per cent of our prison population is currently foreign born. Will we remove them? Fat chance: Britain couldn’t even boot out Rochdale grooming gang ringleader Qari Abdul Rauf, even after he was ordered to be deported by a judge nearly a decade ago.

As Neil O’Brien MP has pointed out, sensible countries like Denmark, the Netherlands, Germany and so on all do a much better job than the UK of measuring the net tax contribution of different groups of migrants. In the UK the data is frustratingly patchy and limited. The ONS is becoming a national embarrassment – first it allowed trans extremism to contaminate the latest census and now it is complaining that it’s too difficult or costly to dig out information on migrants. HMRC used to publish data on the amount of tax paid by nationality, but this has been discontinued.

This obfuscation confuses what is really happening in our society. Left-wing charities churn out publications on our “widening inequality”. But we know that migrant incomes are bimodal – many will be on low incomes, but significant numbers will be seriously well-off people, as rich lists illustrate. Large-scale migration stretches the income distribution and gives the impression of greater unevenness, validating demands that we take more from the wealthy to give to the poor.

The elites expect everyone to swallow the idea that everything is fine. That mass migration is an unalloyed good, and unrelated to such issues as our chronic housing crisis.

The trouble is, people no longer believe that everything is fine. They want the nation to welcome genuine asylum seekers whose survival depends on our compassion. They want our doors open to the best and brightest. What they don’t want is for Britain to open its welfare state to the world. 

European politics is shifting before our very eyes. British policymakers should view the rising support for the AfD in Germany, Geert Wilders’s triumph in the Netherlands, the Freedom Party’s parliamentary election victory in Austria, as a portent of what is to come. If they continue to cover their ears and denounce those who raise concerns over mass migration as bigots, they may find themselves marooned by the rising tide of Right-wing populism.