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Could Brexit impact UK wages?

By Professor Bernd Brandl - January 2020

Previous research has shown that the setting of wages and working conditions is highly influenced by others, i.e. by reference points or peers. What is perceived by individuals or by organisations such as companies or trade unions as a fair wage does not only depend upon the absolute wage level but also upon the relative difference in comparison with others. Especially with others who are considered to be similar with respect to the characteristics of the job and occupation.

For example, a hairdresser in Durham compares her/his wage with that of other hairdressers while a footballer at Newcastle United compares his wage with other footballers. Usually, such comparisons also have a regional dimension. While hairdressers usually are making comparisons regionally or nationally, footballers have a wider range for their comparisons which goes beyond national borders.

More specifically, for example, in the determination of the wage, i.e. in negotiations for the wages of a new University Professor, the Professor as well as Vice Chancellor are certainly looking at wages of other Professors within the University as well as at other universities. It is very common that they will compare wages and working conditions with other university professors in the field.

In an international environment, this comparison and the reference point selection also has an international dimension as (top) universities in the UK act globally, the workforce is usually international and therefore wages and working conditions at other universities in other countries matter.

In my European Commission funded research project, working alongside Barbara Bechter and Aarron Toal, and in partnership with various other institutions, we aim to identify the determinants in wage setting including the importance of comparisons, i.e. the orientation, of and by others. More specifically, by concentrating on actors in wage setting such as (human resource) managers, trade unions and employers’ organisations in all member states of the EU, we try to find out how wage setting in companies, sectors and countries is influenced by one another. In other words, we try to find out if there are any national and transnational interdependencies and ‘comparison’ networks among wage setting actors in the EU.

Against previous research showing that in companies that are highly integrated in international markets and that are exposed to international competition, transnational influences in wage setting are important, we also try to investigate whether there are “leaders” and “followers” in wage determination and what the implications for the development and the governability of wages are.

In other words, the research project aims to identify relevant reference points, peers and benchmarking networks for wage setting throughout and beyond the EU.

Reference point selection and BREXIT

As mentioned before, previous research has shown that wages and working conditions in companies and sectors that are highly integrated in European and international trade are influenced by international factors and the international context. More specifically, in an international economy the terms and conditions of work and employment, including wages, are influenced by the terms and conditions of the main trading partners and there is the need to orient oneself to foreign peers, i.e. on wages and wage-setting in foreign companies.

Against the background that many companies in the UK are highly integrated in the global economy and international trade plays an important role in the structure and functioning of the British economy, we expect wage setting in the UK to be influenced by the transnational context and British wage setters have to orientate themselves to foreign developments. Especially towards wages and working conditions of the main trading partners.

For the UK, the main current trading partners are in the EU and therefore the orientation has been focused towards Europe. Now the crucial question is whether Brexit will bring a change regarding the main trading partners. It is reasonable to expect that if the British economy orientates itself more intensively towards trading partners with higher wages and working conditions, a similar tendency regarding wages in British companies can be expected. While going in the other direction can be expected if trade intensifies with countries with lower wages and standards of working conditions. Thus, will the relevant peers not be in mainland Europe anymore, but rather in China, India, Japan or Australia? Within the European Single Market, trade, wages and working conditions are all protected from competition from low-wage countries; the UK leaving the European Single Market might bring some risks for British employees.

However, at the moment it is not clear what the implications and consequences of Brexit are, but on the basis of the research project, we will be able to investigate how wages and working conditions change in the UK after Brexit and what the role of the global environment is for British companies and employees. More specifically we will be able to investigate how the relevant peers and benchmarks for setting wage and working conditions change and how it will affect British companies and employees.

For more information visit the Marketing and International Business (MIB) research centre here.