Morrisons matters: we need an industrial strategy for pay packets

Published on Wages & Income

Like excessively floral play suits, industrial strategy has made a comeback from that strange land we call the 1970s. It’s all the rage. The government has named a department after it. Jeremy Corbyn is so keen to set that strategy free of European rules and regulations, he wants to leave the single market over it.

But, as with many parts of the so called 70s fashion revival, the punters are far less sure. And that’s mainly because too often they don’t see what’s in it for them. Since it’s rebirth in 2009, through Labour, Coalition and Tory governments, the UK’s industrial strategy has been underpinned by a consensus that the key task was to boost advanced sectors – think aerospace, biotech or automotive – and to spread them to more parts of the country on the back of the city economic empowerment and devolution agenda.

But here is the key challenge – while all the talk has been about advanced industries, only a small fraction of the population actually work in one. 130,000 work in aerospace, and just 13,000 in biotech research. Compare that to 3 million in retail or 1.7 million in hospitality.

That is why it is welcome to see Greg Clark, Secretary of State for Business, Energy and (yes) Industrial Strategy, yesterday give the strategy a clear and meaningful purpose – to “increase the earning power of our country and our people”. Boosting our pay packets is a goal as meaningful to someone working in Morrisons as Microsoft. It’s a national priority too, with average pay still £15 a week below its pre-crisis peak.

So if the goal is to boost the power of our earnings (as well as our batteries) can the focus on spreading advanced sectors deliver it? Here new research from the Resolution Foundation can shed some light.

First, we have a long way to go in spreading advanced industries around the country. London contributed three-quarters of the growth in high-tech, digital economy, tradeable finance and creative industries between 2009 and 2015. The capital currently accounts for over one-quarter of all jobs in advanced industries. Inequality between regions of the UK is lower than it was at its peak in the 1980s, but remains high internationally. It’s right then that the industrial strategy continues to focus on making such growth more geographically inclusive.

Looking at those areas that have bucked the trend and succeeded in attracting advanced industries, we can judge whether living standards have improved by looking at employment and wages.

Let’s start with the good news, on jobs. There are significant wider benefits from the growth of advanced sectors in boosting jobs in the local economy, and not just for those with advanced skills who can work in these industries. For every ten new advanced industry jobs, six additional local jobs are created in local services, with four going to those with fewer qualifications. New high tech sectors have brought in more demand for local services like supermarkets, restaurants and haircuts where most of the population actually works.

On pay the picture is much less rosy. When a biotech cluster turns up, or a financial service firm opens an office in your town, the extra jobs aren’t combined with a pay boost for low qualified workers already there. Indeed pay falls slightly as more low-paid people enter work, dragging down the average.

These two very different effects tell us a lot about what a modern industrial strategy that achieves Greg Clark’s goal of boosting earnings power would look like. Yes it needs the existing focus on growing advanced sectors across Britain. But to get growing pay packets for everyone we need a broader industrial strategy that puts up in lights efforts to raise productivity in lower paying, big employing, service sectors. Higher pay won’t simply trickle down to retail and hospitality from banks and advanced manufacturing. Instead it requires the hard yards of investment in skills and machines that, far from stealing all our jobs, could actually make them better paid.

Or to put it another way – yes Microsoft gets the headlines, but when it comes to a 21st Century industrial strategy Morrisons matters too. The chain, which had just two stores in Bradford in the 1970s, now employs over 110,000 people. When we boost their earnings power we will have an industrial strategy that makes the public sit up and take notice.

This post originally appeared in The Times Red Box.