"The government has said that it wants to see a ‘high wage, high skill' economy.[1] This statement comes in the context of reported labour shortages in some sectors, and an expectation that these shortages could drive up pay.

This report looks at the relationship between these shortages and pay growth in the current economy, drawing on reports from trade unions who organise in these sectors, alongside analysis of the official statistics. It shows that

· While employment has recaptured lost ground, and there are high vacancy levels, the current figures come before the end of the furlough scheme, and many jobs remain at risk

· With inflation up, real wage growth is likely to be flat over the rest of the year – without action from government to improve it. In the public sector real wage growth is negative.

· Many of the sectors reporting shortages are those in which unions have been reporting poor pay and conditions for years; but

· Outside of isolated pockets, there is no evidence that high vacancies are driving up wages.

The move to a high wage high skill economy will not happen on its own. Trade unions have a central role to play. Collective bargaining across sectors delivers sustainable wage rises, and prevents the undercutting by businesses, that, rather than the existence of migrant workers, is the cause of low wages and poor conditions. Government must also act on pay and public service employment, as part of building back a stronger economy.

At the same time as calling for ‘high wages', the Treasury is warning of the risks of an ‘overheating' economy, and calling for a return to the tight spending settlements that sucked demand out of the economy after the financial crisis. At the start of the Spending Review process Rishi Sunak threatened “We should be clear-eyed … Covid has severely damaged our public finances … If we want to continue to meet our commitments in the future, both at home and overseas, we must act now to rebuild our fiscal resilience”.[2] He renewed calls for policies that led to the lowest real wage growth for 200 years, with the wealthy enjoying soaring asset prices. While supply chain pressures are driving up prices in some sectors, notably energy, there is little evidence that the economy is ‘overheating' or cannot cope with higher wages. The greater risk is an economy in the slow lane, with reduced workers' incomes holding back spending power and so restraining growth.

A pay rise would be good for workers, and good for the economy. Now we need a plan to deliver it."

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