BlackRock’s call to raise wages for workers is welcome – but more is needed

Higher wages could help entice more people back [to the workforce]: real wages, or adjusted for inflation, have barely moved since the pandemic.”

It wasn’t the TUC saying that, or a left-of-centre politician or a big union or another progressive organisation of one type or another. That quote hails from BlackRock, the world’s biggest money manager. Capitalism’s crown prince, if you like.

It can be found in the asset manager’s Macro Insights – a regular series put out by the BlackRock Investment Institute. It actually applies to the US, but its writers could just as easily have been talking about the UK, which has been experiencing many of the problems they identify.

Like the US, the UK has been grappling with labour shortages, particularly in hard-hit sectors. It has experienced a substantial chunk of older workers exiting the labour market. It has a similarly strong aversion to using immigration as a means of plugging the gap.

One has to be careful about comparing the US and the UK but on these issues, they could be transatlantic twins. Another interesting snippet from this latest Macro Insight is BlackRock’s view on the inflationary impact of increasing workers’ pay.

“Higher wages wouldn’t necessarily create further inflation pressure if they continue simply keeping pace with inflation,” it says. “In our view, this difficult labour situation is one of the key factors behind current high inflation – so how it evolves is key to the inflation outlook.”

Perhaps the Bank of England might care to consider this, preferably before its amply-rewarded governor Andrew Bailey decides that it is time to repeat his calls for pay restraint at a time when people are struggling to keep ever louder wolves from their doors.

In Britain, calls for higher pay have been heard from similarly unlikely (on the face of it) sources, including the Tory government on occasion. Boris Johnson, the outgoing prime minister, has been particularly fond of banging that particular drum, although not recently. We haven’t heard it from his would-be replacements, who have instead been indulging in the fantasy that unfunded tax cuts will magically solve all Britain’s problems.

What Johnson and his ilk have in common with BlackRock and its fellow travellers is that they fail to address how the higher wages they claim to support are to be achieved. That matters, because while any number of people have been telling companies they jolly well ought to pay their staff more, they aren’t doing so.

To the contrary, which is why Britain is experiencing a worsening cost of living crisis combined with some high-profile incidences of industrial unrest. The response to this has been to castigate the unions organising strikes while telling them “now is not the time” to demand more for their workers. Inflation, you see.

But wait, BlackRock is saying it’s the lack of workers, through poor pay, which is contributing to inflation. And one reason we have a lack of workers might just be... We really are running around in circles here, aren’t we?

I’ve addressed the means of solving the problem in previous columns: it is to bring unions in from the cold, because, where unions have a strong presence, there is more of a level playing field when it comes to the relationship between employer and employee. As no less than the Bank has recognised.

The image of the dinosaur union boss – lately used by Johnson among others – is outdated (if it were ever true). It is perfectly possible to maintain a constructive relationship with unions. Many employers do. But old stereotypes die hard. This is as true of the corporate sector, and of money managers, as it is of politicians representing a party which spins what it thinks are comforting economic fairytales as it descends ever further into a nostalgic fantasy land.

A small number of companies in Britain have gone so far as to appoint employee directors to their boards, recognising that this is another way for them to gain insight into their workforces (and to develop a constructive relationship with the people who make their businesses go).

Yet Lyndsay Browne, an employee director at Capita, was the recipient of a substantial vote against her re-election, far in excess of any of the more traditional directors, at the support services group’s recent AGM.

Yes, the growing recognition that employees matter, are important contributors to businesses’ success and deserve a bigger piece of the pie is very welcome from wherever it comes.

But these fine words from senior politicians, investors and business leaders aren’t yet being matched in practice. This urgently needs to change.