QE, labour market restructuring and the ‘regressive recovery’

When David Cameron emerged from 10 Downing Street on the morning of the 8 May, he proclaimed that he would lead a ‘one nation’ government – one whose guiding aim would be to ensure that ‘the recovery reaches all parts of our country’.

There was nothing particularly new in this rhetorical positioning.  Indeed, in the early years of the Coalition government, one of Cameron’s most popular refrains was to insist that ‘we are all in this together’, whilst the Chancellor, George Osborne, emphasised the need to ‘rebalance’ the UK economy both sectorally and geographically.

In reality, over the past five years Cameron has pursued a distinctive ‘two nations’ governing strategy – one which privileges certain segments of society whilst imposing discipline and retrenchment on others.

In an article published recently in New Political Economy, we outline some of the distributional implications of this process and argue that the transition from crisis to ‘recovery’ has in fact been underpinned by a distinctive dynamic of ‘regressive redistribution’: a process of state-led economic restructuring that has worked through two axes at the centre of the recovery.

The first axis focused on Quantitative Easing (QE). The Bank of England opted to begin undertaking QE from March 2009, injecting new money into the financial system by purchasing Treasury bonds from banks and institutional investors.  Crucially, the policy was encoded with distributional prejudices right from its inception.  It was targeted at increasing the wealth of asset holders in order to boost demand.  While wage-earners experienced an unprecedented period of decline in real earnings, asset-holders received a huge wealth boost from the Bank’s monetary policy committee.  Stock and bond prices rallied on the back of QE 1 and 2, with the Bank itself calculating that the gains in value amounted to around £600 billion.  ‘Picking winners’ in this way has been central to establishing a two-track recovery where asset-holders prosper while wage-earners suffer.

The second axis of the regressive recovery was premised upon wage deflation.  Workers’ real average earnings had declined by 7.9 per cent four years after the onset of the recession, a trend which compares unfavourably against the recessions of the early 1980s and 1990s. While the Conservative party boasted of an ‘employment rich’ recovery, in reality 77 per cent of net job creation between 2010-13 was focused in ‘low pay’ sectors, where pay falls below £8 per hour.  On top of this, there occurred a regressive re-composition of the British labour market, with growing numbers of precariously employed individuals finding themselves involuntarily in temporary jobs.  Wages might now be rising marginally once again, but this is taking place after a slump in real earnings that has not been seen since the 19th Century! Indeed, wages are not set to rise to their pre-recession levels until at least 2020, suggesting that this really has been a ‘lost decade’ for Britain’s low and middle income earners.