I’m not entirely sure about this explanation

The value of wages in real terms has been falling consistently since 2010, the longest period for 50 years.

The decline, which means that the cost of living is outstripping salaries, was attributed to low growth in productivity, or the goods and services that are produced in relation to the workforce.

Well, yes, sorta. But a more convincing one is, I think, that we’ve not seen the growth in unemployment that we might have expected. Instead of firing people in these bad times companies have been restraining wages. This leads to both higher employment than might have occurred and, of course, lower productivity.

You might ay that this is just quibbling. But there’s an important point behind it. We all do indeed want wages to grow faster than inflation for we do all indeed want living standards to improve. But e’ve got to identify what the problem is properly before we can try to solve it.

And if we say “low productivity” is the problem then we might start trying to solve it through increased productivity measures. Like, say, firing the lowest performing 10% of the workforce: that is a very swift indeed method of improving the productivity of those who remain in employment.

But it’s not obvious that this is what we really want to do. It might well be better that it is wages that take the strain of economic bad times rather than unemployment lines.

If we do say that this is what has been happening then we might come to a rather different solution. For example, decent economic growth will solve this problem nicely. And I’m convinced that one of the great breaks on growth at present is the red tape that bogs down anyone at all attempting to do anything at all new. Cut the red tape, get more growth and we’ll soon enough see wages and productivity rise.

This is, of course, a microeconomic solution but then as I’ve said before in the long run it is all microeconomics.

 

4 comments on “I’m not entirely sure about this explanation

  1. There is presumably also a significant contribution from the decline of offshore oil and gas, which is traditionally a very high productivity sector?

  2. There is also the return (is anti-relocation a word yet?) of some low-paid jobs from China and India. This simultaneously makes us better off (because those in work have fewer workless to support) and reduces average wages so Ed Millionaireband can claim we are worse off.

  3. GDP worldwide always grows in lockstep with energy use.

    We could vastly increase our gdp by allowing lower electricity prices – 90% to 98% of electricity cost is state parasitism.

    Instead we have a government and Labour party committed to raising electricity prices & reducing supply. That is why productivity is falling. Only UKIP wishes us to be a successful country. Obviously this is acknowledged by every honest LabConDem but only every honest one.

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