Rather than rage against the machine, I would like to riase an idea that was put to me as a possible approach to resolving (perhaps only in part) some of the inequalities of society in the face of recent strikes; many if not all provoked by a desire by workers to receive pay rises in line with inflation. The reasons for the strikes and the reactions of governments to them are not reviewed here; they are merely the premise for this discussion.

The measured rates of inflation vary vastly depending upon the source – however to maintain a consistent baseline I am using data from the International Monetary Fund (IMF).  Over the course of 2022, many countries have seen significant rises in the rate of inflation.  The change in the global rate has moved from 4.7% in 2021 to 8.8% in 2022.  Borken down further, the increase for what the IMF refers to as ‘Advanced Economies’ has increased from 3.5% to 7.2%, and for ‘Developing Economies’ increased from 5.9% to 9.9% (likewise – 2021-2022 figures).  The change is even more stark if a comparison is made between 2020 and 2021 (there is a sliding graph on the website so you can see for yourself the changes).

Since inflation measures the change in the price of commodities, it follows then that an increase in inflation leads directly to an increase in the cost of living.  This can become an issue when the increase in wages (should there be one) does not match the increase in prices: an increase in wages lower than inflation will effectively be equivalent to a real terms pay cut.  This is a situation which occurs with regularity, but one for which iit is not so easy to find definitive data (sadly).  As a broad picture however, it would appear that the following data is consistent: most public sector workes have seen large drops in real terms pay since 2010 – estimates from different data sets range from 5% reductions to 20% reductions (after inflation).   The argument being that a pay rise less than inflation is the equivalent to a pay cut.  The theory that a pay rise is equivalent to a pay cut of course applies to whatever job and whatever salary that one receives – whether one earns €20,000 a year or €100,000, any rise less that the inflation figure effectively means that the salary has dropped in comparison to the previous year.

According to the Bank of England inflation calculator, £10 in 2010 is the equivalent today of £14 – which means that your money today is worth 70% of its 2010 value.  (Have you received a 40% pay rise since 2010?)

In light of this, we now see many industries in the United Kingdom in particular (but also elsewhere) stirking for better pay, and specifically, pay in line with inflation.  Indeed, the negotiations (at least the information which is publicly disclosed) indicates that to compensate for years of neglect, the Royal College of Nursing is asking for an ‘inflation + 5% rise’ – equivalent to around 18% using today’s current UK inflation rate.

Any increase in wages which impacts all levels of service in the same way would of course raise the wages of all levels – so the person earning €20,000 would increase to €23,600 and the person earning €100,000 would increase to €118,000 (given an 18% increase.  This would of course maintain the current values of remuneration across the board, and would maintain the existing pay gap – it is the equivalent of considering that each job today remains as valuable as it was in comparison to the other jobs from the previous year.  Not only would this idea result in an overall increase in the wage bill by 18%, but it would also maintain the existing levels of wealth inequality.  But what would happen were one to assume a position of positive discrimination – such as the policies which have been discussed/ introduced in order to attempt to reduce the disparity in employment between men and women and between the differing ethnic backgrounds?

What if a better idea would be to increase the pay of the less-well paid more than the better paid?  How about if all levels of function could be afforded an increase in a percentage of their salary linked to inflation, and other increases can remain witin the purview of the employer?  Before you jump in… let me finish…

This concept is based around the idea that the impact of inflation is felt less deeply by the better paid than by the less-well paid.  Assuming the salary of €20,000, one might think that all of this money is needed to assume a basic standard of living…  it would follow therefore that the person earning €100,000 would also ONLY need €20,000 to ensure their basic standard of living too.

If then we structured our society so that this ‘basic’ €20,000 received a de-facto inflation-linked pay rise this would mean that the salaries would become €23.600 and €103,600 respectively – as opposed to €23,600 and €118,000.  Ths system could not only ensure the maintenance of the standard of living, but would also see a narrowing of the pay gap between levels – and would ensure effectively that the better-paid members of society gradually have their ‘privilege’ reduced over time.  If maintained over 10 years for example – the pay of the person earning €20,000 would increase to €88,000 and would represent 53% of the better paid person’s salary (which would have raised to €168,000 over the same period) rather than the 20% it represented at the start.

As I say – this is not my idea, but it is certainly something which I believe deserves reflection…  (despite this, I still maintain that all people and all jobs should be paid exactly the same: but I might be prepared to conisder a shorter-term compromise…)