Inflationary wage rises still waiting to happen

This week it is the turn of the Passport Office to face the public sector unions’ campaign to test the Government’s determination to stick by pay deals that no longer match inflation.

Last week it was local council workers, next week there will be someone else.

That is tough on holidaymakers who forgot to check their passport’s sell-by date until the last minute, just as it was tough if nobody collected your dustbin the other day – and tough on everybody whose income is losing buying power this summer. Most of us, that is.

What it is not is a summer of discontent. These are pin-pricks, not remotely a threat to our ability to get on with our lives, not even a challenge to the Government’s ability, such as it is, to govern.

It is also strictly a public sector affair. Have you noticed, we have not yet had the annual holiday-time airport/airline walk-out? There was Terminal Five at Heathrow in the Spring, but that was the work of inept managers not bloody-minded workers.

True, the Shell tanker drivers did away with it. But there were only 600 of them and no chorus of “Me too” to welcome their victory.
It may all be too good to last. Chancellor Alistair Darling’s abject abandonment of Gordon Brown’s unsustainable “sustainable borrowing rule” – doomed months ago by Northern Rock – was greeted warmly by a string of public sector union leaders. If the Government is to borrow as if there is no tomorrow, well, their job is to win their members a share of it.

We shall see. The most remarkable feature of the present inflation is that the Bank of England’s fear of an avalanche of pay deals to match inflated oil, food and commodity prices and everything that stems from them has not materialised. Expectations of future inflation are rising all right, but they are not converting into pay deals.

Nobody knows why.

Legal & General’s economists track the balance between worries about inflation and worries about jobs.

Sure enough this shows that since 2006 job worries have loomed larger in Britain – even though these were years, until very recently, of low and falling unemployment. Indeed, the number of people in work rose unrelentingly.

Immigration is the saloon bar explanation for this paradox. Sure enough, L&G’s graph of job worries started its steep climb in 2004, the year Polish plumbers and the rest began to arrive in serious – albeit unmeasured – numbers.

The job-worry trend was much less marked on the Continent, where Poles and the others were not supposed to work. German workers have won some enviable pay deals, hence the European Central Bank’s interest rate increase last month.

To explore the link between migrant workers and the absence of pay pressure, the Bank of England’s regional agents ask employers round the country about the proportion of migrants in their workforces – and what change they have seen now that the zloty has risen against the pound and Poland has become more prosperous.

Answer: Some Poles are going home. Many are graduates who can look for better jobs in Poland. They are being replaced by migrants from elsewhere – who tend to be less skilled.

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