This is an audio transcript of the Working It podcast episode — How big a pay rise do you need right now?

Isabel Berwick
Hello and welcome to Working It with me, Isabel Berwick. Everyone’s noticed the cost of living is going up, train fares are going up, energy bills are rocketing. I’m even starting to hear people talking about that on the street. And mortgage payments for our homes are going up as interest rates rise. There’s a huge sort of concatenation of events that’s only going to get harder as 2022 goes on. So today we’re asking the question, how is the cost of living crisis affecting workers and what can or should employers and managers be doing to help offset some of those price hikes? Joining me today are Emma Jacobs, FT features writer and a Working It regular and Delphine Strauss, economics correspondent. Welcome both.

Delphine Strauss
Hello.

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Isabel Berwick
So to start off, I wanted to set the scene for listeners. Let’s do a big picture. What’s happening in the global economy and what impact is that having on prices and the cost of living? Delphine, you’re the expert on this. Talking about big economies like the US and the UK. What’s going on and how much worse is it going to get?

Delphine Strauss
So we’re in an incredibly fraught situation across almost all developed economies where we’ve got inflation at levels that we haven’t seen for decades on such a sustained basis. Central banks are trying to stamp on the brakes and tighten policy quite fast to bring inflation down. But that puts both businesses and their staff in a really sort of difficult position. Labour markets have been quite strong over the last year or so. Lots of companies have been struggling to hire. Lots of workers have felt able to put a little bit more pressure on asking for a pay rise. And wages are growing quite fast in nominal terms, but not nearly fast enough to match inflation. On employers’ side, a lot of them are quite sympathetic and they’re also very keen to keep staff in a difficult hiring market. So they want to make a decent offer. But then again they’re looking at possibly quite a sharp slowdown in demand. Lots of economists are forecasting a recession over the next six months to a year. You know, their costs are rising on all fronts. So some of them are also just feeling very squeezed and unable to offer as much as they’d like in that kind of environment. We’re getting more disputes, more hiring problems, and also just a lot of people trying to look quite carefully at whether there’s anything else they can do apart from pay.

Isabel Berwick
So our colleague Claer Barrett who hosts the Money Clinic podcast points out that UK workers need to get around a 10% pay rise just to stand still in 2022. And that’s much higher than we’re used to getting and it’s shocking how quickly it’s happening. Delphine, what pay rises are people getting at the moment? What’s the evidence coming in?

Delphine Strauss
People are watching the evidence really closely because it’s the big question and it depends how you count it. So, regular earnings are quite sharply below inflation. If you include bonuses as well, then the latest data shows that up until about April, when energy prices really bounced again. But up until April, total pay, with all the bonuses in there, was more or less keeping track with inflation, that was quite heavily weighted towards the top end. Bankers probably got a chunk of it, but it wasn’t just that. And we are also seeing some big employers now increasingly giving not just kind of lump sum cost of living payments, but also mid-year consolidated pay rises that will actually, you know, help your pension and so on as well. Unite the union just managed to negotiate a cost of living increase for some groups of staff at Barclays that’s worth about, you know, 5 per cent consolidated. PwC just put in place quite a big pay rise for a lot of its workers that will see sort of nearly a double digit increase. And that, too, is a consolidated one. All of this is deeply worrying central bankers who think that probably all pay does need to fall if inflation is going to come down. But there’s quite a disparate picture, and that’s partly why we’re seeing all of these disputes where employers are still trying to hand down a 2% pay rise. And no questions, please. It’s increasingly not tenable when people look around at what’s happening elsewhere.

Isabel Berwick
And Emma, you talk to a lot HR managers and corporate leaders in your job. Is there any acknowledgement or expectation that pay and cost of living is a huge issue already, or do they acknowledge it as part of employee wellbeing? Because I haven’t been aware of that so far. You’ve just written a big essay about wellbeing. Did pay and conditions come up in that?

Emma Jacobs
Well, I think that it does privately, but not publicly. Once you say it publicly, then you set the expectation that there’s going to be pay rises, which is quite difficult. It’s not really in HR managers’ gift and there’s a lot of focus, I guess, in white-collar employees about financial wellness when it comes to money on the other aspects of wellbeing. There’s all kind of things like gym membership and meditation apps which we’ve talked about before, being a kind of nice thing that soothes their employees but doesn’t do much to help them eat. And then, I guess that large retailers are looking at other issues like discounts for staff to buy food and other items. So I think there is a lot going on privately, but not publicly.

Isabel Berwick
So some of the supermarkets have reduced prices for their own staff, haven’t they?

Emma Jacobs
Well, they’re doing discounts so you can get money off food.

Delphine Strauss
And I think that’s always been in place.

Isabel Berwick
Yeah.

Delphine Strauss
With a couple of the big supermarkets have made it more generous recently, I think, and there’s been quite a lot of they’re sort of, you know, looking at all of the usual corners of benefit packages and just saying, are we making the most of the tax breaks available? But, you quite quickly get to the point that time you already paid accounts.

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Isabel Berwick
I wanted to have you both on because you have written a very popular article about the impact of cost of living rises on workers and what some employers are doing to help. So, apart from these longstanding things, what sorts of things did you find employers were doing? Delphine, did you find something unusual when you went to report this?

Delphine Strauss
Well, I think one of the big new things is that there is now one big trade off that can be made around homeworking vouchers and, you know, cycle to work schemes are all at the margins, but commuting costs are a really big deal. And one of the things employers can do, even if they feel like they haven’t got enough money for a good pay deal, is they can allow staff to have more flexibility about how many times a week they come in. And I think that flexibility is now being given for financial reasons as much as for work-life balance reasons.

Isabel Berwick
Emma, do you think that’s really starting to take off among employers and will impact the return to the office as we go into the autumn and winter?

Emma Jacobs
Well, I think it’s a really difficult time for them because a lot of them want their employees to be in the office. So they’re trying to kind of figure out how do we get people back into the office and explain the benefits. And often they have quite long leases on their own offices. That was quite a lot of expenditure. And then also understand that this has a hit on their productivity if they’re worrying about their finances. And also just the whole idea of the commute is pre-pandemic and post-pandemic. If we’re at a post-pandemic stage yet, which we know that people just see it in a very different way, it’s now a tax on work for people in a way that they didn’t really see it before. I mean, they obviously they complained about rail fare rises and petrol prices, but I think that people really do think is this day in the office worth it to me and what is the point of being in the office? So I think that employers will have to make a really good case in terms of the costs and what workers will get out of it. And also just there’s a whole package around going to the office. You know, it’s that meal that you’re eating out, a sandwich meal. You know, all these things just make work more expensive.

Isabel Berwick
There’s a collision of this cost of living crisis with this really quite philosophical change in the way we see work and where we do work. These things have collided in a really sort of unexpected way, I think, Emma.

Emma Jacobs
There’s lots of unforeseen circumstances. I mean, I think even a few months ago things were quite optimistic and the office was like a kind of place to see your work friends and have serendipitous thoughts and collaborate. And now it’s much more about how expensive is this day going to be? Is it worth it to me? People have become much more transactional about the way that they see their work now that they know that they can do it at home, I guess.

Isabel Berwick
And I was interested in sort of energy costs. Delphine, these are only going up. I think the government in Britain has ordered some sort of small subsidies for people. But do you think this will mean a winter retreat back to our bedrooms? Because it’ll cost a lot to heat our homes. It might actually offset the commuting costs to go to the office.

Delphine Strauss
Will be interesting to see how people make those individual calculations. I’m guessing that offices might be turning down the thermostat a bit as well. So maybe running into the office because it’s warmer there won’t work as well as it did last winter. Yes, there is a bit of help on offer from the government. Depending on your circumstances, it might actually offset a lot of it in some cases. But, I think just given the pressures on all fronts, if you get a cheque through the post from the government in July, that’s meant to cover your heating bill in October. It might not feel like that when it comes to October.

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Isabel Berwick
Exactly. So, I wanted to talk about some of the reader responses to your article, which was incredibly popular. And I guess the question is beyond pay rises, what should employers be doing and what can we all do? So, I wanted to read this one out. Someone’s suggesting that more people can and should move outside cities. Growth in the regions offers a much cheaper housing, and it’s the way to go. Get out of the cities, work from home should be offered to make that easier. In Wales, Scotland, towns and various counties outside, the major conurbations are heaps cheaper than cities. London’s middle class is hollowing out to places like Cambridge. It pays off in terms of lower prices for housing and healthier environment. And as always, leading ahead of the curve, Her Majesty the Queen has wisely abandoned gloomy Buckingham Palace and moved to exciting and impressive Windsor Castle near the open fields and green pastures. So, Emma, we saw a lot of people moving early in the pandemic to get out of cities. Is that going to be a cost of living penalty now that will push people away, too.

Emma Jacobs
I like the idea that the Queen’s a role model for our household expenditure, I’ll follow her style. I think it’s quite difficult to tell and I think that London’s got very good transport infrastructure. Other cities don’t. And I guess commuting to other cities, especially in cars and so on, is expensive.

Delphine Strauss
Yeah. I mean, I think looking at the royal example, it’s not actually a move very far. So I think quite a lot of people have felt freer to move, but they’re usually moving within a region and still within reach of their existing workplace. And it’s probably only, you know, IT workers who feel really free to go to the beautiful sort of cheap housing in rural Wales or...

Isabel Berwick
Or the beach.

Delphine Strauss
Or the beach. We’ve sort of having all of this discussion about whether city centres lose their economies. I saw some figures on that recently that are basically showing that yes indeed, there’s quite a big hit to city centres. The gains are spread out quite thinly across places that were quite prosperous already, precisely because they’re in commuting range.

Isabel Berwick
Interesting. So here’s one about some of the specific things that employers are doing. The provision of interest-free crisis loans to help with unexpected expenditure is a worthwhile benefit, but it needs careful management. I believe the burden of high interest charges on loans to people with low incomes or who are dependent on benefits is one of the main causes of financial distress. There are many struggling families in the UK who pay hundreds of pounds every month to lenders on loans taken out in the past. It’s no wonder they resort to food banks. So Delphine, we talked a little bit about these sort of loans in the article. Do you think this is going to become a key benefit that employers are offering to try to offset the kind of very high rates that what used to be called doorstep lenders charge to people?

Delphine Strauss
There are some employers who are putting in a bit more provision in the way of crisis lending for employers who get into difficulty. So I think John Lewis is one organisation that’s been doing more, but I don’t think this is really widely available to the large numbers that I think is one of the key things employers are doing, largely because they would be quite wary of taking on that much responsibility. There is more of a trend for employers to offer staff faster access to pay. So rather than being sort of fixed on a monthly pay cycle using apps that would allow faster access to money as you earn it. And I think there’s mixed evidence around those. They can be really helpful. And then they can also put you in a situation where, well, if you were in the red at the end of every month and having faster access to it isn’t ultimately going to solve the fact that you’re not earning enough to cover your bills. So I think care is needed.

Emma Jacobs
I think some of the financial wellness clinics that people have set up. I mean it’s easy to be cynical and no doubt we have been cynical about them, that they seem like a kind of money meditation instead of actually money to help buy things. But I think when people do get into problems with debt, to have somebody go through it and offer clear, impartial advice is really helpful. I mean, I spoke to one employer who did offer it and they said that they had a staff member who had taken out multiple loans and couldn’t really see a way out of it, and they’d helped to streamline it. It didn’t take the money problems away, but it helped make it manageable. It also just alleviated a very private, difficult pressure for them. But as Delphine says, not every employer wants to take on that kind of responsibility.

Delphine Strauss
But I think it is true actually, that the financial advice is, it’s not nothing. It is quite helpful and even just the online tools and budgeting apps can be really useful just to see how your monthly pay breaks down and what the pressures are very clearly visualised. And I think for the employers who are offering this on demand wages and kind of real time pay, then having that done twinned with good financial advice is seen as being quite important.

Isabel Berwick
Yeah, I think these are really important things as we go into the very expensive autumn and winter of this year.

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Isabel Berwick
So here’s another good reader comment. Capers and Leave “I took the approach of building housing next to their factories so their employees could walk to work”. Emma, do you think we might see this sort of thing happening again? So, I know John Lewis, the British department store chain, is going into building housing on its sites. And I was interested when you wrote your essay recently about nanny employers, which are linked to in the show notes. Did you find any evidence of sort of retro style paternalistic employer action or was it all mindfulness and menopause?

Emma Jacobs
So the essay that I wrote was about the employers being kind of nanny that in the years leading up to the pandemic, there was an intensification of wellness discussions and benefits such as some white-collar employees are offering onsite psychologists, onsite psychiatrists. Some like Bjorn Borg, the Swedish sports company, takes employers biological age through a series of fitness tests and puts it in its annual report and encourages it... well, doesn’t encourage them, it’s mandatory to do an exercise class at 11:00 on Fridays. So some take quite a big role in their employees wellbeing and then the pandemic intensified. It’s sort of interference would be one way of putting it. I mean, they were zoomed in literally into people’s homes so you could see their children and their families. And so there was a kind of corporate intimacy between employees and employers. And as we come out of that, do people actually want to have their employer so intrusive in their lives or do they want it to be more transactional? And one employer in the US had really scaled back his wellness benefits and put more emphasis on pay. And judging by readers’ comments, they seem to want just the money.

Isabel Berwick
Interesting. So lots of people in the comments and we see this a lot on social media are commenting on CEO pay, which is still going up and the pay differentials with average workers are getting even more extreme. So Deloitte recently found the median employee to FTSE 100 chief executive pay ratio was 1 to 81, and that was 1 to 59 in 2020, and 1 to 75 in 2019. So it’s just going up and up. CEOs had a bit of pay restraint in the pandemic and sort of cut their pay as a solidarity thing. But they’re back up there now, median average of £3.6 million a year for chief executive in the UK. So Delphine, might the cost of living crisis have any impact on persuading or forcing CEOs into taking less pay or perhaps sharing more with their employees or less generous share options. Have you seen any evidence of this yet?

Delphine Strauss
That’ll be interesting to see. When we’ve seen a really big bounce back in bonuses driven by the financial sector. So I think there is sort of a lean year in 2021. And then at the start of this year, the bonuses really came back with a vengeance. And as you say, the pay ratios are worsening again. I think the high pay centre has done work on that that shows similar findings to the Deloitte study. Speaking to unions at the moment, they are obviously outraged by some of the chief executive pay they see going through while as they see it, their members are being very squeezed. They’re very happy to point this out and they do say that in some cases they might have a dispute going. They draught a press release pointing out the pay rise that the chief executive has just received. And then they find that the pay dispute is settled before they need to put the press release out. So I think there are some sort of, you know, people starting to watch this more closely and chief executives starting to feel uncomfortable. Andrew Bailey, the Bank of England governor got into an awful lot of trouble by calling for pay restraint with unions coming back saying a way, you’re not calling for corporate profit restraint. He did then modify that and kind of say, you know, he thought that particularly people at the higher end of the earnings spectrum ought to be showing pay restraint this year and that he’d generously passed up on his own pay rise, see how many people follow the lead.

Isabel Berwick
So we’ve touched on unions though, which is fascinating. We’re already starting to see strikes, the rail industry and also legal industry. Criminal barristers went on strike. Delphine, what role do you think unions are going to be playing in terms of helping workers with their cost of living? It seems to me that we’re in a state that is only going to get more fractious.

Delphine Strauss
Yes, I think it’s bound to be an incredibly fractious year and far more of the pay disputes are likely to sort of get towards industrial action than they have had for a while. It’s still true that there aren’t that many workplaces in the private sector where unions play a really big role at the moment. It’s often either the public sector or sort of quasi public sector organisations. So strikes are brewing at the moment on the railways, which is essentially still funded by government. In some of the sort of legacy X monopolies like Royal Mail and the Post Office. In the private sector you do see disputes, but perhaps more of them are being settled before they get to the picket lines.

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Isabel Berwick
One of the big post-pandemic finance headaches for many families is finding and paying for childcare. And we’ve discussed it before on the podcast, and I’m sure we’ll discuss it again. But it seems these systems are broken in the UK and the US, perhaps not so much in Europe. And Delphine there are tax breaks for UK workers for childcare and free hours in nurseries. But are employers starting to help out with costs or is it just that sort of tax breaks generally at the moment which are not massively generous, are they?

Delphine Strauss
I don’t think it’s a generalised thing. I mean I’ve been talking to recruitment agencies in Poland over the last week or so where they’re doing this huge push to try and get Ukrainian refugees into jobs. And they’re you’re seeing sort of, you know, big industrial employers doing their best to set up housing and set up childcare on sites and, you know, get kids in school and all sorts of things. It’s not a small job. I don’t think we’re going to see it in a big way in the UK. I think it’s still our problem.

Isabel Berwick
I mean childcare issue I think is not going away, Emma. And one solution that used to be very well relatively popular was onsite nurseries which were paid for very heavily subsidised by the employer, which seemed to be incredibly popular about ten or 15 years ago and then disappeared. Do you think we might see the return of the employer nursery?

Emma Jacobs
I don’t think in this environment at the moment. I mean, there are some employers that still do. Goldman Sachs offers, kind of onsite nursery, but I mean even then it’s very restricted places. I think that our employer schemes like emergency childcare if you get into crisis. But I don’t think we’ll be seeing the workplace nursery anytime soon. I mean there might be kind of ideas around the edges, but I doubt it will be an investment in the workplace nursery.

Isabel Berwick
Yeah, in fact, I did an event this morning and one of the questions was how far should we tolerate people who are looking after their children while working?

Emma Jacobs
Is it not at all?

Isabel Berwick
Well, no, it wasn’t. Because the reality is that a lot of people can’t get, for example, after school childcare for their children or they can’t pay for it. And I think this is going to become, you know, this might be one way to help the cost of living. It is to tolerate people whose kids are in the house while they’re working at home.

Emma Jacobs
I think that even before the pandemic, there were some co-working spaces that were, I mean in a way, co-ops between usually working mothers that would tolerate a bit of young children in a corner or somebody would have more responsibility while the others looked after them. So these kind of informal arrangements are always being made. I don’t know about white collar employers. I kind of think that they might have lost tolerance and want their employees to just get on with the job. I think in some cases there is a sort of feeling that they’ve had enough and they just want people to work.

Isabel Berwick
Yeah.

Isabel Berwick
Thinking sort of slightly imaginatively about how we can offset cost of living rises. Side hustles and second jobs have always been a thing among workers, but often people have kept them quite quiet. But the arrival of platforms for sharing skills or selling crafts has changed everything. But are the UK and US governments tracking who’s earning what and who’s paying tax? A lot of this work used to be cash in hand, didn’t it, Delphine?

Delphine Strauss
So in the first sort of year or so of the pandemic started, we saw quite a lot of people using their furlough to set up startups, often one form or another of online retail. I think quite a lot of those, you know, people have gone back to their day jobs. They some have succeeded. We’ve also actually seen quite a big drop in self-employment, which is partly about tax enforcement. It’s new rules coming in that are supposed to clamp down on fake self-employment because of what that’s done to the figures, it’s a little bit hard to tell what’s happening on the ground. I suppose just one other thought on whether side hustles are going to be the right way to top up your income at the moment. Well, we see one of the most popular ones has always been driving for one or rather of the ride-hailing apps. That’s not necessarily paying so well at the moment, given petrol costs and the cost of getting hold of a decent car.

Isabel Berwick
So those days might be over the sort of glory days of getting a ride in one minute.

Isabel Berwick
But yeah, the seven economy service talking about being over.

Isabel Berwick
Yeah, well, and perhaps rightly. So Emma lots of employers have sort of tolerated side hustles but aren’t wild about them or they might not know they’re going on. Do you think that’s potentially an area where things might change? Have you heard of any companies sort of encouraging side hustles as part of employees wellbeing?

Emma Jacobs
No. I spoke to somebody that was trying the four-day week the other day in kind of a low wage environment. And we talked about whether people might start using the other days to find another job. And he was quite upset at the idea that all the benefits of having time off would be lost. But I mean, it’s so complicated. When I spoke to Arup, who do a seven day a week work pattern, somebody said that one of her side hustles which was setting up a gift business. Being able to spread her work over seven days meant that she could go out at lunchtime and post her gifts. And so in that environment, it seemed to be quite tolerated, even encouraged. I mean, I think it just depends on what impact it has on your day job.

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Isabel Berwick
What’s going to happen next, Delphine? How do you see the rest of the year panning out in terms of cost of living and how that’s going to affect us as workers?

Delphine Strauss
So in the UK, inflation’s still going up. We’re expecting it to hit 10, 11 per cent by the autumn. It’s really jury’s out at the moment on whether wages are going to carry on pressing up as well or not. The UK is in a slightly different position from other countries. If you look in the US you see wage growth is already flattening out and perhaps just sort of the whole situation is a little further ahead. In Europe, inflation may not stay high for as long, but wages have been much lower over the last year and we’re still not sure whether wage growth is going to catch up. So I think we’ve got quite a varied picture. And really the big question now is whether central banks are going to manage to achieve a soft landing or whether a year from now we’re going to be talking about a big spike in unemployment.

Isabel Berwick
It’s all quite depressing. I mean, is there anything positive that could come out of this in terms of how we view our employers, our work, what managers can do?

Emma Jacobs
Hey, one little glimmer [LAUGHING] of hope was that some employers are listening to low-wage staff and thinking more about career progression and how their wages could progress over their career and be much clearer about development. And I think that, that is a change in blue collar work that has happened since the pandemic and may continue. But I mean, as Delphine said, I mean, a lot depends on whether there’s going to be a recession or not.

Delphine Strauss
What people in the UK do say is that the labour market should stay tight for quite a while now. Maybe things aren’t looking great over the next year or so. But the sort of underlying situation that workers are in short supply could last quite some time, and that does put people in a better position where their employers might want to invest in them more.

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Isabel Berwick
I think that’s a really positive thing to end on. It’s a clearly a really difficult situation. It’s going to get worse. But I’m encouraged to know that some employers are offering debt advice, financial advice, and that some people are negotiating better deals themselves and better career progression. These are things that haven’t really been thought about for a long time. The idea of how we work and what we do is being revisited in every aspect. And perhaps the cost of living crisis will push managers. And we should all be thinking about how we can make work better for people in all aspects, not just pay, but also in all the benefits that we see in work and the wellbeing that gives us. But ultimately, if you can’t pay for your food, you’re really going to have a very difficult autumn. So I imagine a lot more of us will be in our bedrooms again. And the big return to office I think will be stalled in the big economies. I can’t see any other way forward. So sorry employers, you’re going to have to be offering more than free coffee to get people back on those trains.

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Isabel Berwick
Thanks to Emma Jacobs and Delphine Strauss for this episode. Please do get in touch with us. We want to hear from you. We’re workingit@ft.com. With me @isabelberwick on Twitter. If you’re enjoying the podcast, we’d really appreciate it if you left us a rating and review on Apple Podcasts. And if you’re an FT subscriber, please sign up for our Working It newsletter. We’ve got behind the scenes extras from the podcast and Work and Career stories you won’t find anywhere else. Sign up at ft.com/newsletters. Working It is produced by Novel for the Financial Times. Thanks to the producer Anna Sinfield, executive producer Jo Wheeler, production assistants from Lee Maier and Amalia Swartland and mix from Chris O’Shaughnessy. From the FT we have editorial direction from Renée Kaplan and Manuela Saragosa and production support from Persis Love. Thanks for listening.

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