How serious is Boris Johnson about wanting higher wages?

A look at the basis of the Johnson electoral coalition suggests "not very".

Today Boris Johnson pledged to move Britain away from its “broken old” economic model and to build a new one of a “high wage, high skill, high productivity economy”. Despite soaring energy prices, a lingering petrol shortage and increasingly threadbare supermarket shelves the Prime Minister has spent his party conference in a buoyant mood. There has been much talk of rising wages and a somewhat blasé dismissal of fretting about rising inflation.

Indeed, there has been a remarkable switch in the government’s rhetoric. A couple of weeks back government spokespeople were insistent that a shortage of lorry drivers and firms struggling to hire was nothing to do with Brexit. Now we are told that this is not only a consequence of Brexit but something to cheer. The ending of free movement of European workers will, we are now informed, force up wages and terms and conditions to draw Britons into roles previously filled by migrants.

But beyond noting the chutzpah of attempting to sell a shortage of lorry drivers as the herald of glorious new era for workers, how seriously should Johnson’s rhetoric be taken? If the government was genuinely following President Biden down the path of cheering wage rises, that would indeed be big news. But this is unlikely to be the case.

Taking political economy seriously means listening to what politicians are saying but it does not necessarily mean taking what they say seriously. In fact, a quick glance at the basis of Johnson’s electoral coalition gives plenty of reasons for scepticism.

It’s understandable enough that the government is keen to talk up wage growth. The headline numbers are certainly cheery.

The headline measures from the ONS point to the fastest real wage growth in two decades. But those same headline measures come with a bucket-load of caveats: they are being distorted by both the year-on-year comparison with the height of the fallout from the pandemic and a compositional effect as lower-waged workers were the most likely to lose their jobs, pushing up the average. And that’s before one considers the fact that inflation has risen materially since July and looks set to be above 4% by the end of Autumn or the ending of furlough and the resulting increase in labour market slack. Real wages look more likely to fall over the coming six months than to rise.

Much of the government’s current argument on wages hangs on a flimsy peg: the idea that ending European free movement is going to have a material impact on wages at the aggregate level. Certainly, in some sectors, the effects are already being felt. A recent analysis by Indeed did find some evidence of faster nominal wage increases in some of the sectors where bosses are bemoaning a shortage of workers. But across the economy, pay pressures appear reasonably muted.

But, stepping back from the immediate six monthly outlook, does it really make sense for Johnson, in political economy terms, to be majoring in on the case for higher wages?

A superficial analysis of the results of the 2019 general election would suggest “yes”. Johnson not only won a healthy Conservative majority but one which looks rather different from that David Cameron achieved in 2015. Whereas Cameron won his majority by snatching 27 seats, mostly in prosperous places, from the Liberal Democrats, Boris Johnson’s was based on a few dozen gains from Labour in the north of England, the Midlands and Wales.

Keen to cement that majority the government likes to talk up it’s still ill-defined “levelling-up” agenda, which featured prominently in today’s conference speech. Superficially a commitment to raising wages sounds exactly like the sort of thing a government keen to reward it’s new supporters would do.

But superficial analysis can only take one so far. Yes, the seats the Conservatives won from Labour in 2019 are poorer places than existing Conservative seats but as a post-election analysis from the Resolution Foundation found the so-called Blue Wall seats are also marked by relatively high levels of home ownership.

For all the rhetoric about the Conservatives reinventing themselves as the real party of British workers, the basis of Johnson’s electoral coalition remains a traditionally Conservative one:  older people who likely either own their home outright or are paying a mortgage.

It’s easy enough for such a party to bask for a few months in the warm glow of good real wage statistics. But, absent a material rise in productivity, a general increase in wages that begins to push up prices is another matter.

The casual chain that runs: faster wage growth – higher inflation – higher interest rates – lower house prices is not one the government’s current electoral coalition would welcome and is one the Treasury is very much alive to.

Better to think of Johnson’s speech today as part of his usual “politics of spectacle” than as a serious governing agenda or as part of a major shift in the UK’s economic paradigm.  

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