In the transition from manufacturing to services, advanced market economies face a ‘trilemma’ between fiscal restraint, employment growth and wage equality. Iversen and Wren, writing in 1998, found that the UK had gone down the low-wage road, deregulating the labour market so that wage inequality increased and the service sector expanded. This paper revisits their assessment. It identifies institutional pressures to turn back on the low-wage road in the structure of the social security system and the strategies of employers and unions regarding the minimum wage. Whereas Iversen and Wren thought that rising inequality might be politically unsustainable and its effects would be felt through the electoral process, the paper shows that the institutional landscape has proved more important than political partisanship in bringing about a change of direction. More generally, it illustrates that neoliberal policies do not create or operate in an institutional vacuum despite their deregulatory thrust.
