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Rising inequality in the UK and the political economy of Brexit: lessons for policy

Ozlem Onaran () and Alexander Guschanski ()

No 15630, Greenwich Papers in Political Economy from University of Greenwich, Greenwich Political Economy Research Centre

Abstract: The EU Referendum in the UK on 23 June laid bare long existing divisions in the country. Throughout the campaign, the leave side diverted their discontent to a scapegoat of immigration and fuelled xenophobia. While there is consensus that the result is linked to inequality, the impact of migration on inequality is contested. Our recent research shows that inequality in the UK increased not because of migration, i.e. the mobility of labour, but because of the increased fallback options of capital related to increased capital mobility in the form of FDI and financialisation; declining fallback options of labour related to the decline in collective bargaining power, deregulation of the labour market, zero hours contracts and false self-employed contracts, austerity, housing crisis and rising household debt, which itself is linked to financialisation and inequality. The irony is that in fact, migration does not have a negative impact on the share of wages in total income and real wages even in the service sectors predominantly hiring low-skilled labour, which also employ a large share of migrants. The quick conclusions related to the impact of immigration on inequality, without adequately decomposing the impact of all other factors, misses the point that correlation is not causation. The real solution to inequality requires regulating finance and the corporate governance of corporations, taming capital mobility, increasing public investment in social infrastructure and housing, regulating the labour market and improving the legislation to increase the voice of trade unions and collective bargaining coverage. In an alternative economy where the balance of power shifts in favour of labour and unions have a strong voice, if migrants come to work, it is possible to set the terms and conditions under which they work by the local workforce. Conversely, in the current situation where the bargaining power of workers has been dramatically eroded with respect to capital, high capital mobility and low wages elsewhere in Eastern Europe and the world will mean the firms will relocate or offshore parts of their production abroad, even if migration can be limited after Brexit.

Keywords: UK Referendum; Brexit; Europe; inequality; wages; globalization; migration; capital mobility; financialisation; bargaining; union density; government spending (search for similar items in EconPapers)
JEL-codes: E12 E22 E25 (search for similar items in EconPapers)
Date: 2016-07-04
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