Thursday 19 October 2017

The explanation is probably the same as last time.

From The Independent:

Real wages across the UK declined for a sixth consecutive month in August. Growth in pay packets continued to lag behind a jump in inflation triggered by a dramatic fall in the pound since the UK voted for to leave the EU.

Official data on Wednesday showed that basic wage growth was 2.1 per cent during the three months to the end of August when excluding bonuses, unchanged from the previous three-month period and marginally higher than the 2 per cent pencilled in by analysts, but well below inflation.

Figures earlier this week showed that inflation had hit a five-year high of 3 per cent in September, piling fresh pressure on the Bank of England to raise interest rates next month...

“Pay packets are taking a hammering,” said TUC general secretary Frances O’Grady. “This is the sixth month in a row that prices have risen faster than wages. Britain desperately needs a pay rise. Working people are earning less today in real-terms than a decade ago...”

Wednesday’s data also showed that job creation across the UK is continuing, albeit at a slightly slower pace. The number of people in work rose by 94,000 during the period, about half the increase in the three months to July but still a relatively strong rate of growth.


Last time we had headlines like this, somebody delved a bit deeper and worked out that wages for existing jobs were increasing as normal, in line with inflation but that all the extra jobs tend to be lower wage jobs, which drags the overall average down.

Which sort of makes sense; if a local manufacturer pays good wages, then people have extra money to spend on coffee, dragging average wages down You wouldn't expect loads of coffee shops to open up first paying low wages and then magically a manufacturer to set up business there, dragging average wages up

This effect also explains why UK productivity/productivity growth is so low. The reverse applies in France, which has much higher unemployment, but average productivity of those actually in work is much higher than in the UK.

The Germans have a different mentality and score well on both counts, of course, but then again, they have ghastly anti-capitalist measures like explicit and implicit rent controls, which is why they are all so desperately poor.

3 comments:

James Higham said...

You wouldn't expect loads of coffee shops to open up first paying low wages and then magically a manufacturer to set up business there, dragging average wages up

Exactly.

MikeW said...

Agree with the comments above.

So,

Productivity of most economist/journalists explaining 'productivity' to us = 0

MW enlightens in four short paragraphs. Makes sense to me. Thanks

Mark Wadsworth said...

JH, L, MW, thanks for back up.