Sonia Sadha
does a brilliant job of getting her argument about pensions and risk entirely
the wrong way round. She tells
us that:
"We need to ask hard questions about
why young people are being expected to bear increasing amounts of individual
risk. The obvious example is pensions. Gone are the days when companies pledged
to pay retired workers a guaranteed income for the rest of their lives; today’s
workers must, instead, save into an individual pot that must last."
I'm sure the
irony will be lost on most people associated with The Guardian - but this, of
course, from a paper whose columnists continually bleat on about the plight of falling
wages. To understand why this article is misjudged, you need to understand why
falling wages are not the bogie that most think they are.
But before we
get to that, it's a shame Sonia Sadha doesn't seem to grasp that pensions are
not separate from the price of labour - they are deferred labour costs bundled
into the same overall package as pay. Whether the pay/pension costs to the firm
are at a ratio of 90/10, 80/20 or 70/30, they are still total costs that a
business must factor into its overall balance sheet.
In an age
where firms are forced to pay a minimum wage, which puts the value of labour
out of whack with the price of labour, and then consequently only serves to
increase both unemployment and consumer prices* - and in an age where people
are living longer and longer, making pensions prohibitively expensive - the
reality is, more and more employees are not worth the combined costs to their
employer of their pay and a lengthy pension payment plan.
Because your
pension is deferred pay, the only way for many employers to keep up the kind of
pension commitments that were prominent when we didn't live so long would be to
increase the pension to pay ratio, which would mean cutting pay to increase
pension duration. And that's a policy you will never see a Guardian columnist
endorse. What Sonia Sadha sees as the ignominy of apparently "forcing
individuals to bear more risk" is really just a simple case of arithmetic.
Why falling wages are a good thing
Now, about
falling wages: falling wages are, in net terms, a good thing for an economy
overall. Obviously they are bad for the people whose wages have fallen - but
falling wages are a transfer from workers to employers (and indirectly, to
consumers) - there is no net negative externality, it is merely a
distributional effect.
But there are several additional positive elements to lower wages. People tend to confuse economic growth
and job creation, but most of the real benefits of economic progress come from
saving labour, not increasing its cost. Lower wages means it costs less to
produce something, which is a similar benefit to finding a new efficiency or a
new technological innovation.
On top of technology
improving living standards, and consumers having goods and services more
cheaply, there is a third positive to falling wages in places like the UK and USA:
such as boosts for our domestic economy (not to mention poorer people in the
developing world having more money when home grown inefficiencies are
outsourced). This is to do with the ratio of total labour costs to real output,
and how the decreasing wage you need to pay employees to produce one unit of
output increases the likelihood of keeping it in this country - another thing
The Guardian writers have always claimed to like.
* This is basic Econ 101 that politicians
love to ignore. The supply and demand curves of labour are factors that mustn't
be overlooked, because employment and wages are always in a trade off tension.
Price floors like a state-imposed minimum wage artificially hold wages higher
than their marginal value, which means when economic supply and demand forces
are trying to push wages down, something has got to give with a minimum wage
law, and it's usually unemployment and increased prices for consumers.
