Transatlantic lessons for middle Britain

Published on Incomes and Inequality

This blog originally appeared on Bright Blue

Today sees the launch of ‘The Squeezed Middle: the pressure on ordinary workers in America and Britain’ – a collection of essays from America’s leading thinkers in the field of living standards to understand what lessons, if any, we might draw from the US experience.

You may well wonder what we can take from a country where the crisis in living standards is so great that it’s not an exaggeration to talk of America’s ‘lost generation’. Productivity has risen threefold since 1970 but barely a dollar from this buoyant economy has made its way into the average person’s pay packet. Even the recent return to moderate growth in the US has not eased the challenges most families are facing.

The US is an outlier in the sense that the historic link between pay and productivity was brutally severed forty years ago – thankfully the UK does not exactly mirror this glum picture.

However Resolution Foundation analysis highlights a deeply worrying development: since the early 2000s, wages and household income have flatlined for British low and middle income families, and since the recession they have in fact declined. This suggests that despite important differences, at a fundamental level the US and the UK share a problem: while our nations have got richer, low and middle income households have suffered a stagnation and even decline in living standards.

There are other alarm bells that should be ringing too: as in the US, we have seen inequality rise sharply in recent years. Living costs continue to rise faster than inflation, significantly reducing the spending power of low and middle income households. Furthermore, from tax credits to worker rights, many of the policies that have historically protected Britain from looking more like the US are either under threat or being watered down.

But let’s not start wringing our hands just yet. While acknowledging the impact of globalization, technological change and immigration, the contributors to the book are compelling on the crucial role of policy and politics in shaping economic realities.

They underline the most important lesson that we can take from the US experience: decline and stagnation of the scale seen in the US is not inevitable. We do in fact have a choice as to whether we want to reverse the declining living standards of low and middle income households. Policy decisions and political priorities can augment or mitigate economic trends, and determine who gains most from any future growth we might enjoy.

So the question now is whether any of the major parties are able to find a language and set of policy priorities that make living standards an organizing political idea. There are some welcome signs that the new generation of Conservatives recognize the significance of the issues. But there aren’t many quick wins here. Reflecting on the American experience, the book’s contributors set out a challenging set of issues where action is needed, including:

* A focus on who benefits from growth, as well as on achieving growth in the first place.
* A focus on improving market wages, as well as on ensuring taxes and transfers are actively supporting working families.
* A focus on broadening employment and in-work supports such as childcare, as well as on the quality of jobs.

President Obama declared that a chart showing the declining living standards of America’s middle class was his ‘North Star’ in his re-election campaign last year. Will any political leader here do the same? If not, then we risk treading the path that the US has already gone down – with disastrous consequences for the third of our working age population who live in low and middle income households.